ARTICLE 2: DEFINITION OF COLLECTION
“For the purposes of these Articles: a “Collection” means the handling by banks of documents as defined in sub-Article 2(b), in accordance with instructions received, in order to: 1 obtain payment and/or acceptance, or 2 deliver documents against payment and/or against acceptance, or 3 deliver documents on other terms and conditions.”
Explanation:
This clause defines “Collection” as the process by which banks manage specific documents, either financial or commercial, on behalf of their customers. The purpose of this handling is to either secure payment or acceptance of a payment obligation, such as a bill of exchange, or to deliver documents to another party based on certain agreed conditions.
Example:
Imagine a seller in India who exports goods to a buyer in the UK. The seller instructs their bank to collect payment by presenting the shipping documents to the buyer’s bank. The buyer’s bank will then handle these documents in exchange for payment or acceptance of a draft, ensuring that the seller receives their due payment according to the terms specified by the seller.
“b “Documents” means financial documents and/or commercial documents: 1 “Financial documents” means bills of exchange, promissory notes, cheques, or other similar instruments used for obtaining the payment of money; 2 “Commercial documents” means invoices, transport documents, documents of title or other similar documents, or any other documents whatsoever, not being financial documents.”
Explanation:
This clause categorizes the documents involved in a collection process into two types:
- Financial Documents: These are documents that represent a payment obligation, such as bills of exchange, promissory notes, or cheques. These are primarily used to collect money from the buyer.
- Commercial Documents: These are documents related to the actual transaction of goods or services, such as invoices, bills of lading, or certificates of origin. These documents do not directly represent a payment obligation but are essential for completing the trade transaction.
Example:
Continuing with the earlier example, if the seller in India presents a bill of exchange (a financial document) and an invoice along with a bill of lading (commercial documents), the buyer’s bank must handle both sets of documents according to the seller’s instructions to obtain payment or acceptance from the buyer.
“c “Clean collection” means collection of financial documents not accompanied by commercial documents.”
Explanation:
A “Clean Collection” refers to a situation where only financial documents, such as a bill of exchange or a promissory note, are presented to the bank for collection, without any accompanying commercial documents like invoices or shipping documents.
Example:
If the seller in India only sends a bill of exchange to the buyer’s bank without any other documents, it would be considered a clean collection. The buyer’s bank would then handle the collection process solely based on this financial document.
“d “Documentary collection” means collection of: 1 Financial documents accompanied by commercial documents; 2 Commercial documents not accompanied by financial documents.”
Explanation:
A “Documentary Collection” involves either:
- Financial documents accompanied by commercial documents: This is the typical scenario where documents like a bill of exchange are presented along with invoices and transport documents to facilitate payment.
- Commercial documents not accompanied by financial documents: In this case, the collection involves only the commercial documents, such as shipping documents or invoices, without any accompanying financial documents.
Example:
If the seller in India sends both a bill of exchange (financial document) and a bill of lading (commercial document) to the buyer’s bank, it is a documentary collection under the first type. If the seller sends only the bill of lading without a bill of exchange, it would still be a documentary collection but under the second type.