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What is Collection

What is Collection


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Let's talk about it. What is collection

Collection is a kind of international trade settlement method, it refers to the exporter (creditor) issued a draft, entrusts the bank to the importer to collect payment for goods or services. The advantages, disadvantages and risks of collection are as follows:


Advantages of collection:

Collection, in contrast to remittance, allows the exporter to control the shipping documents, thereby controlling the ownership of the goods and protecting the interests of the exporter.

Compared with letter of credit, collection can save the cost of issuing credit, simplify the procedures and improve the efficiency of settlement.

Collection can improve the competitiveness of exporters, because it can eliminate the procedures and costs of issuing credit for importers, and may also obtain the facility of deferred payment.


Disadvantages of collection:

Collection is a commercial credit, the bank is only acting as the agent of the exporter, and does not assume the responsibility of payment, and the importer does not pay the bank. Therefore, the risk of collection for exporters is greater, especially under the D/A method, exporters face the risk of losing both money and goods.

Collection is the first shipment after the collection, resulting in exporters' capital turnover difficulties, and for importers, especially in the D/A method, it is equivalent to using the received goods to sell the money to pay exporters.

Risks of collection:

The main risks exporters face are: exchange rate risk, political risk, credit risk, legal risk and so on.

The main risks importers face are: quality risk, quantity risk, delay risk, exchange rate risk and so on.


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In addition, collection is divided into D/P and D/A are two international trade settlement methods, which is a payment method for exporters to entrust banks to collect goods or services from importers.


The differences are as follows:

D/P is a document against payment, that is, the importer must pay up before he can get the goods from the bank, so as to collect the goods. This is advantageous to the exporter because they can control ownership of the goods until they are paid.

D/A is documents against acceptance, that is, the importer must accept the usance draft drawn by the exporter in order to obtain the documents from the bank for the delivery of the goods. This method is more beneficial to the importer, because they can get the goods first and then pay, and possibly get the convenience of late payment.



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