MINISTRY OF FINANCE
UNIVERSITY OF FINANCE - MARKETING
FACULTY OF COMMERCE AND TOURISM
REPORT
SUBJECT: INTERNATIONAL SETTLEMENT
TOPIC: COLLECTION PAYMENT METHOD
Teacher: Ph.D. Nguyen Thi Thuy Giang
Class code: 25211802088503
Class: TH_23DLG01
Group: 2
Students: Huynh Vy 2221002794
Pham Ngoc Ha 2321002298
Nguyen Nhat Khang 2221002534
Ha Gia Nghi 2321002431
Nguyen Truc Lan 2321002361
Nguyen Thi Phuong Thao 2321002538
Ho Chi Minh City, July 2025
COLLECTION PAYMENT METHOD
1. Definition of collection payment method
According to URC 522, Collection means the handling by banks of documents in accordance
with instructions received, in order to:
- Obtain payment and/or acceptance, or
- Deliver documents against payment and/or against acceptance, or
- Deliver documents on other terms and conditions.
Documents means financial documents and/or commercial documents:
- Financial documents means bills of exchange, promissory notes, cheques, or other similar
instruments used for obtaining the payment of money.
- Commercial documents means invoices, transport documents, documents of title or other
similar documents, or any other documents whatsoever, not being financial documents.
2. Parties to a collection
- The principal (the seller): who is the party entrusting the handling of a collection to a bank :
beneficiary, exporter
- The drawee (the buyer): is the one to who presentation is to be made in accordance with the
collection instruction: importer
- The remitting bank : which is the bank to which the principal has entrusted handling of
collection. This bank is obliged to receive a collection order from the principal under the
condition set out by the principal to collect money for him. Documents will be transmitted as
origin received by the remitting bank
- The collecting bank which is any bank, other than the remitting bank , involved in
processing the collection
- The presenting bank which is the collecting making presentation to the drawee.
3. Types of collection
There are 2 types of Collection: Clean Collection and Documentary Collection
3.1. Definition of Clean collection
Clean collection is a method in which the exporter, after supplying goods/services to the
importer, delegates his bank to collect money basing on the bill of exchange not accompanied
by commercial documents which are directly sent for the importer to obtain goods.
3.2. Documentary Collection
3.2.1. Definition of Documentary collection
Documentary collection is a method in which the exporter delegates his bank to collect
money from the importer basing on the bill of exchange accompanied by commercial
documents with the condition that the documents are released to the buyer when he or she
accepts or pays the bill.
3.2.2. Compare Clean collection and Documentary collection
Criteria Clean collection Documentary collection
Concept The exporter delivers goods The exporter delivers goods to the
and commercial documents to importer without documents.
the importer.
Use - The exporter delivers goods - The exporter delivers goods, then
and commercial documents sends the set of documents through
directly to the importer. the bank.
- The bill of exchange and - The importer must make payment
collection instruction is sent or accept payment or refuse payment
through the bank to request in order to receive the documents to
payment. collect the goods.
Strengths - Simple - The bank’s task is higher than
TTR’s: control of the buyer by
- This method is a benefit for documents.
the importer because taking
delivery does not involve the
payment.
Drawbacks - The speed of payment is Do not bind the importer in taking
slow. delivery.
- The exporter's interests are
not guaranteed.
- Functions of the bank are not
fully used.
Cases to - To pay service charges - The seller and buyer have a certain
apply related to export: shipping level of trust exists in the
charges, compensation penalty, relationship.
or premium.
- Both the buyer and seller trust - The seller wants to retain control
each other. over the goods until the buyer makes
- Both sides have internal or agrees to make payment.
relations as the parent company
and its subsidiary or between
different affiliates
3.2.3. Types of Documentary Collection
3.2.3.1.D/P method (Document against Payment)
a. Definition
Delivery of Documents against payment is a payment method in which the buyer must pay in
order to receive a set of documents to pick up the goods.
b. Documentary Collection Process and Explain the steps in the process
- Step 0: The seller and buyer sign the sales contract under D/P method.
- Step 1: The seller delivers goods to the buyer. The seller does not deliver the set of
documents directly to the buyer; instead, the documents will be delivered through the
bank.
- Step 2:The seller delegates his bank collect money from the buyer through collection
instruction and commercial documents and bill of exchange. The remitting bank is not
responsible for verifying the details of each document submitted by the seller; it only
checks the type and quantity of documents in order to prepare a document list to be
forwarded to the collecting bank.
- Step 3: The remitting bank issues the collection letter based on the seller’s collection
instruction, then forwards the commercial documents and bills of exchange along with
the collection in order to collecting bank to collect money from buyer.
- Step 4: The collecting bank receives documents without responsibilities to check them.
The collecting bank presents the bill of exchange and commercial documents to the buyer
to request payment collection conditions: D/P (Documents against payment).
- Step 5: The buyer makes payment under D/P, or refuses to make payment if he/she
doesn't want to take delivery.
- Step 6: The collecting bank hands set of documents to the buyer
- Step 7: The collecting bank must send without delay advice of payment/non-payment to
the remitting bank detailing the mount or amount collected, charges, and or
disbursements and/or expenses deducted, and method of disposal of funds.
- Step 8: The remitting bank credits the seller's account and sends a credit note to the seller
or sends advice of non-payment and/or non-acceptance to the seller.
3.2.3.2. D/A method (Document Against Acceptance)
a. Definition
D/A – Documents against Acceptance (Collection based on acceptance):
The bank releases the shipping documents to the buyer only when the buyer provides a
written commitment to pay or signs a time draft (a bill of exchange payable at a future date).
This acceptance serves as a formal promise to pay the seller on the due date. Only after this
acceptance does the bank hand over the documents, allowing the buyer to take possession of
the goods.
b. Documentary Collection Process and Explain the steps in the process
- Step 0: The seller and buyer sign the sales contract under D/A
- Step 1: The seller delivers goods to the buyer. The seller does not deliver commercial
documents and financial documents directly to the buyer; instead, the documents will be
delivered through the bank.
- Step 2: The seller delegates his bank to collect money from the buyer through the
collection instruction and commercial documents and bill of exchange.
- Step 3: The remitting bank issues the collection letter and forwards the bill of exchange
and commercial documents and collection letter in order to collect payment from the
buyer.
- Step 4: The collecting bank receives documents without responsibilities to check them.
The collecting bank presents the bill of exchange and commercial documents to the buyer
to request payment under D/A conditions.
- Step 5: The buyer signs the bill of exchange to accept (committing to pay on the maturity
date), or refuses to sign if he/she doesn't want to take delivery.
- Step 6: The collecting bank releases the set of documents to the buyer after acceptance of
the bill of exchange.The collecting bank doesn’t release the set of documents to the buyer
if the buyer refuses.
- Step 7: The collecting bank must send without delay advice of acceptance/ non-
acceptance to the remitting bank.
- Step 8: The remitting bank credits the seller's account and sends a credit note to the seller
or sends advice of non-acceptance to the seller.
3.2.4. Case to apply D/A and D/P methods
- D/P – Documents against Payment:
This method is used when the seller wants to ensure payment before releasing the shipping
documents to the buyer. It is typically applied when the seller wishes to minimize risks and
protect their interests.
- D/A – Documents against Acceptance:
This method is used in cases where the seller offers trade credit to the importer. It is applied
when the buyer commits to payment in writing or accepts a time bill of exchange.
3.2.5. Case study under D/P method analysis
3.2.5.1. Export Collection Documents Schedule
An Export Collection Documents Schedule is a formal document prepared by the remitting
bank that accompanies a set of shipping and commercial documents submitted under a
Documentary Collection arrangement. It outlines essential details for the collecting bank to
process payment from the buyer.
Purpose:
Listing the attached export/shipping documents
Specifying payment terms and conditions
Giving instructions to the collecting bank on how to handle the transaction
General information:
The Export Collection Documents Schedule is issued by RAKBANK (The National Bank of
Ras Al-Khaimah) – UAE, Date of issue of certificate24 Oct 2023, Collecting Bank is HO CHI
MINH CITY DEVELOPMENT JOINT STOCK COMMERCIAL BANK – Tay Ninh Branch.
Parties Involved:
Drawer (Exporter): AGRIGCAS GLOBAL FZE (UAE).
Drawee (Importer): XUYEN HOA IMPORT EXPORT TRADING PRO (Vietnam).
Payment Terms and Shipping Details:
In Payment Terms has Tenor: Sight (The buyer must make payment immediately upon
presentation of the documents.)
Documents enclosed:
This is the list of documents sent by the seller to the buyer through the bank, enabling the
buyer to receive the goods and complete customs clearance procedures.
Instructions:
1. The collecting bank (HD Bank) is only authorized to release the documents to the
importer (YEN HOA IMPORT EXPORT TRADING PRO) after the importer has paid the full
amount of the bill of exchange/collection instruction.
2. The remitting bank (RAKBANK) requests the collecting bank to send a SWIFT message
to confirm that they have received the documents and the collection instructions.
3. If the importer refuses to pay, the collecting bank must immediately inform the remitting
bank by SWIFT. It is crucial to state the reason for non-payment (e.g., goods not as per
quality, discrepancies in documents, financial inability, etc.)
4. This instruction clearly states that all costs incurred during the collection process
(including the collecting bank's fees, communication charges, etc.) are to be borne by the
importer (YEN HOA IMPORT EXPORT TRADING PRO). The collecting bank is not
permitted to waive these charges for the importer without prior approval from the remitting
bank.
5. This is a special note, likely because the Drawee's name(XUYEN HOA IMPORT
EXPORT TRADING PROCESSING ONE MEMBER COMPANY LIMITED) is long,
complex, or easily misspelled. The remitting bank wants to emphasize and ensure that the
collecting bank correctly identifies the importer's company name. This is very important to
avoid misdelivery of documents or other legal issues.
6. These are detailed instructions on how the collecting bank must transfer the funds to the
remitting bank after collecting them from the importer.
3.2.5.2. Commercial Invoice
A commercial invoice is a goods document issued by the seller to request payment from the
buyer for the amount specified on the invoice.( per Article 18 of UCP 600)
Functions:
Requesting Payment from the Buyer: Depending on the payment method, the seller sends the
commercial invoice either directly to the buyer or through the bank to request payment for the
goods.
Purchasing Cargo Insurance: When purchasing insurance for import/export goods, the
insured must submit a set of documents to the insurance company, including the commercial
invoice. The commercial invoice indicates the value of the goods being traded, serving as the
basis for calculating the insured amount, from which the insurance premium payable to the
insurer can be determined.
Presentation to Customs Authorities: During customs clearance procedures, the customs
declarant must submit various documents, including the commercial invoice, which is used to
determine the amount of tax payable.
Basis for Contract Monitoring and Reconciliation: The commercial invoice contains
information on goods, delivery, payment, and transportation. The buyer can rely on this
information to monitor and verify the seller’s performance under the sales contract.
Invoice Information and Parties Involved:
This section includes information about shipper/exporter, consignee, invoice No, date issued,
contract No and B/L No and Notify party if have.
Shipment details:
This section includes information about method, type, vessl, voyage No, POL, POD, saling
on/about, country of orgin.
Payment terms:
In this case, Incoterms 2010 rule is applied under the CIF Cat Lai Port, Ho Chi Minh City,
using the D/P (Documents Against Payment) method, in which 88% is payable at sight and
2% after quality inspection within 07 working days.
Good details:
This section includes information about the good as mark & numbers, description, HS code,
quantity, unit price, amount, country of origin, net and gross weight.
Financial summary:
Total Amount (before any deductions/additions): 167,332.05 USD
Deductions/Additions shown:
Advance Advance: 16,760.00
88% D/P At Sight: 147,252.21 USD
2% After Quality Inspection: 3,346.65 USD
3.2.5.3. Sales contract:
A sales contract under the CISG refers to an agreement between parties located in different
countries for the sale and purchase of goods.
A sales contract's primary role is to formally document the terms and conditions of a sale
between buyer and seller, ensuring clarity and preventing misunderstandings. It outlines the
rights and obligations of both parties, including what's being sold, the price, payment terms,
and delivery timelines. This helps protect both the buyer and seller in the event of disputes or
breaches of agreement.
Parties Involved:
Include information about the seller and the buyer
Contract Information:
Description of commodity:
Include information about product, quantity, unit price, total amount, and incoterms.
Terms and Conditions (Key Clauses):
2. 5% more or less both in amount and quantity allowed at the seller's option. (This allows
for slight variations in the shipment quantity.)
3. Specifies the packaging material (new jute bags, suitable for sea transport) and the net
weight of cashews per bag (approx. 80kg), plus the tare weight of the bag itself (1kg). This is
important for handling, storage, and calculating total net and gross weight.
7. Matches the Commercial Invoice terms.
REFERENCES
1. Ph.D. Nong Thi Nhu Mai (2020), International Settlement Textbook,
University of Finance – Marketing.
2. Set of documents: Export Collection Documents Schedule, RAKBANK
(2023).
