How Documents Against Acceptance works in International Trade

Summary

This video explains the Documentary Collection method (DA), focusing on Documents Against Acceptance (DA). The process involves the exporter shipping goods to the importer, followed by the preparation of trade documents and collection instructions. These documents are sent to the remitting bank, which forwards them to the presenting bank. The importer accepts the bill of exchange and clears the goods at the port. Payment is made by the importer 90 days after acceptance, and the remitting bank credits the exporter’s account. The entire process is governed by the Uniform Rules for Collections (URC 522).

Takeaways

• 😀 Documentary collection method (DA) involves documents against acceptance, where payment is made 90 days after sight of the bill of exchange.
• 😀 In a DA transaction, the exporter (principal) and importer (drawer) agree on terms for payment via documentary collection, which is governed by the Uniform Rules for Collection (URC 522).
• 😀 The exporter ships the goods, prepares the necessary trade documents (including the bill of lading and bill of exchange), and sends them to the remitting bank.
• 😀 The exporter provides the remitting bank with a cover letter, known as collection instructions, detailing the required documents and terms of payment.
• 😀 The remitting bank sends the trade documents to the collecting bank, which is the agent of the remitting bank, and informs the importer about the documents.
• 😀 The collecting bank (also the presenting bank) releases the documents to the importer once the bill of exchange is accepted by the importer.
• 😀 The importer must sign the bill of exchange to accept it, which means they agree to pay 90 days after sight.
• 😀 Once the bill of exchange is accepted, the importer can clear the goods from the port and distribute them to their retailers.
• 😀 After the importer receives payment from the retailers, they will settle the payment for the bill of exchange with the collecting bank.
• 😀 The collecting bank then remits the payment to the remitting bank, which credits the exporter’s account once the payment is received.
• 😀 This entire process is governed by the Uniform Rules for Collection (URC 522), published by the International Chamber of Commerce.

Q & A

What is the Documentary Collection method DA?

The Documentary Collection method, also known as DA (Documents Against Acceptance), is a payment method where the exporter ships goods and forwards trade documents to their bank. The importer receives the goods after accepting the bill of exchange, which commits them to make payment 90 days later.

What does '90 days after sight' mean in the context of DA?

In the DA method, '90 days after sight' means that the importer must make payment 90 days after they accept the bill of exchange. The acceptance confirms their commitment to pay within the specified timeframe.

Who are the key parties involved in a Documentary Collection (DA)?

The key parties involved are the exporter (principal) and the importer (drawer). The exporter ships the goods and sends trade documents to their bank, while the importer accepts the bill of exchange and later makes payment.

What are the responsibilities of the exporter in a DA transaction?

The exporter is responsible for shipping the goods, preparing the necessary trade documents (such as the bill of lading and bill of exchange), and submitting them to their bank with collection instructions.

What role does the remitting bank play in a DA transaction?

The remitting bank (usually the exporter's bank) receives the trade documents from the exporter, prepares a cover letter with collection instructions, and forwards the documents to the collecting bank.

What does the collecting bank do in the DA process?

The collecting bank (importer's bank) receives the trade documents from the remitting bank, informs the importer, and facilitates the release of the documents once the importer accepts the bill of exchange.

What is the function of the bill of exchange in the DA method?

The bill of exchange serves as a written commitment from the importer to pay for the goods. The importer must accept this document by signing it before the collecting bank releases the trade documents.

How does the importer receive the goods in a DA transaction?

Once the importer accepts the bill of exchange, the collecting bank releases the trade documents to them. With these documents, the importer can clear the goods at the port and distribute them to their retailers.

What happens after the importer clears the goods from the port?

After clearing the goods, the importer sells them to retailers and collects payment. Upon maturity of the bill of exchange (90 days after acceptance), the importer then makes the payment to the collecting bank.

How does the exporter receive payment in a DA transaction?

The collecting bank remits payment to the remitting bank after receiving it from the importer. The remitting bank then credits the exporter's account, completing the transaction.