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Step 9: Obtaining finance/resources for your exports

You are here:Step 9: Obtaining finances/resources for your exports > Payment methods as a means of financing > Documentary collections


 

 

Documentary collections

 

What are documentary collections?

Documentary collections allow you to keep control of the goods and to raise additional finance as a result. How documentary collections work is that an overseas bank, acting on your bank's behalf, will only release the documents necessary for your customer (i.e. the importer) to take possession of the goods once they formally accept the terms of a bill of exchange. In accepting the bill of exchange, the customer essentially pays the overseas bank (i.e. they essentially "buy" the bill of exchange from the bank).

Bills of Exchange

A bill of exchange is a written document in which 'the drawer' requires 'the drawee' to pay a specified amount. The drawer is yourself, while the drawee is usually your customer.

If a bill is being used with a term letter of credit, the drawee is usually the customer's bank. The bill will also specify when payment should be made. The bill can either request immediate payment ('at sight' or 'on demand'), or it can specify payment at a later date ("the term"), e.g. 30 days after sight. The terms of the contract usually require your customer to accept the bill immediately if it is for later payment. New exporters may find that their bank is not initially willing to provide them with term bills. Drawees become legally liable for payment once they 'accept' (agree to pay) the bill. A bill is often referred to as a "draft" until it has been accepted. 'Negotiable' bills specify payment 'to the order of' the drawer. This allows you to negotiate the bill, ie to sell it to another party (usually your bank) to raise finance.

Should the bill of exchange not be accepted by the customer, you will still have ownership and control of the goods, but in your customer's country. There is also a risk that you may not receive payment, unless the bill has been guaranteed by the bank ("avalised"). You will have a strong basis for pursuing legal action against the customer but in the foreign country.

The bill of exchange can specify any credit period that you negotiate with your customer. For example, you can specify immediate payment, payment after a set number of days, or payment by a given date. Once the bill has been accepted, you can use the bill of exchange to raise additional finance.

You should be aware that in the case of a bill of exchange, both your bank and the overseas bank will charge a commission. Your terms of trade with your customer must specify who is responsible for paying these charges. Documentary collections are typically used for exports to customers you have an established relationship with.

 
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Step 9: more information

Step 9: Obtaining finances/resources for your exports
      Bank financing
      Payment methods as a means of financing
            .Documentary credits
      dti export incentives
      Payment terms and export financing
      Pricing as a means of financing
      Export receivables
      Foreign currency loans
      Alternative sources of financing

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More information on Step 9
Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
Step 12: Negotiating and quoting in exports
Step 13: Revising your export costings and price
Step 14: Obtaining the export order
Step 15: Producing the goods
Step 16: Handling the export logistics
Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
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