Collection Arrangement

Abstract

Collection Arrangement is a transaction where the exporter entrusts the collection of a payment to the remitting bank (exporter’s bank), which sends documents to a collecting bank (importer’s bank), along with instructions for payment. The funds are received from the importer and remitted to the exporter through the banks in exchange for those documents. Collection Arrangements is a process where a draft is used which requires the importer to pay the face amount either at sight (document against payment or cash against documents) or on a specified date (document against acceptance or cash against acceptance). The draft gives instructions that specify the documents required for the transfer of title to the goods. Although banks do act as facilitators for their clients under collections, Collection Arrangement needs no verification process and limited recourse in the event of non-payment. Drafts in Collection Arrangement are generally less expensive than letters of credit.