Incasso is an order from the exporter to his bank to receive from the importer (directly or through another bank) a certain amount of money or confirmation (acceptance) that this amount will be paid on time. Incasso is used in settlements on terms of both cash and commercial credit.
In collection operations, banks and their customers are guided by the “Unified Collection Rules” developed by the International Chamber of Commerce. Currently, the “Unified Rules” are in force as amended in 1995. N522, effective January 1 1996 year.
Unified rules determine the types of collection, the procedure for submitting documents for payment and making payments, acceptance, determine the duties and responsibilities of the parties, give a uniform interpretation of various terms and resolve other issues.
According to the “Unified Rules”, collection is an operation carried out by banks on the basis of received instructions with documents in order to:
receipt of acceptance and / or payment; issuance of commercial documents against acceptance and / or payment; issuance of documents on other conditions.
Depending on the documents with which the collection operation is performed, two types of collection are distinguished:
pure collection – collection of financial documents (casso check, bill, payment receipts, etc.); documentary collection – collection of commercial documents that may or may not be accompanied by financial documents.
Participants in the collection transaction are:
trustee – a client who entrusts the collection operation to his bank; issuing bank – a bank to which the trustee entrusts the collection operation; collection bank – any bank that is not a issuing bank, participating in the operation to fulfill the collection order; representing the bank – a bank that directly receives a payment or acceptance, making the submission of documents to the payer; payer – person, to which documents must be submitted in accordance with the collection order.
After the conclusion of the contract (1), in which the parties stipulate through which banks the settlements will be made, the exporter ships the goods (2) in accordance with the terms of the concluded contract. Having received transport documents from the transport organization (3), the exporter prepares a set of documents that includes commercial, as well as, if necessary, and financial documents and submits them to his bank (remitter bank) at the collection request (4).
Having received documents from the trustee, the issuing bank carries out their verification on external signs, which are indicated in the collection order, and further acts in accordance with the instructions of the principal contained in this order, and “Unified Rules”. The issuing bank sends documents to the collecting bank (5), which is usually the bank of the importing country.
In the collection order, the issuing bank indicates instructions for the transfer of funds received from the payer, as well as instructions for bills, if the calculations are carried out using a commercial loan and provide for acceptance of bills by the importer.
The collection bank, having received a collection order and documents, transfers them to the payer (6) for verification in order to receive payment or acceptance from it, depending on the instructions contained in the collection order. An instructing bank can make the presentation of documents to the payer on its own or through another bank – representing the bank.
The collection order may provide for various instructions in the transfer of documents to the payer:
issue documents against payment; issue documents against acceptance (cost); issue documents without payment.
An accruing (representing) bank is required to comply with the instructions of the exporter (trustee).
If the instructions contained in the collection order provide for the issuance of documents against payment, the submitting bank sends the payer a notice of receipt of the collection order with documents and with a request to pay documents (6). After receiving payment from the importer (7), the bank transfers documents to it. An accruing bank transfers revenue to a issuing bank (8) by mail or telegraph (telex).
Upon receipt of the transfer, the bank of the issuer credits the proceeds to the account of the exporter (trustee) (9).
If the instructions contained in the collection order provide for the transfer of documents to the payer against acceptance, the bank must transfer the documents to him after receiving from him an accepted bill of exchange (cost) sent by the principal on a collection order. By accepting the bill, the payer assumes the obligation to make the payment on time.
If the delay in payment, i.e. the provision of a short-term commercial loan is not issued by a bill, the bank, on the basis of the instructions of the principal, can issue documents to the payer without payment. At the same time, the exporter, as a rule, requires the importer of a bank guarantee to secure payment under the contract. In this case, documents may be issued under the written obligation of the payer to make the payment on time.
The unified collection rules determine that banks involved in the collection operation act as intermediaries and do not bear any responsibility for non-payment or non-acceptance of documents.
The obligations of participating banks are limited to the fact that they must submit documents or expenses to the payer (acceptance) or send documents to another bank to submit them for payment (acceptance). In case of non-payment (inacceptance), the payer’s bank must notify the trustee and his bank about this.
The use of the collection form is to some extent beneficial to the exporter, since banks protect his right to the goods before payment or acceptance of documents (unless the instructions of the principal provide for the issuance of documents to the payer without payment, which increases the risk of the exporter in non-payment). The right to goods to the importer is given by documents of title, which he takes possession of after payment or acceptance, if there is no instruction from the principal on the transfer of documents to the payer without paying them.
Documents received by the importer for verification remain at the disposal of the bank until they are paid or accepted, and in case of refusal to pay, are refundable to the bank indicating the reasons for the non-payment.
The use of the collection form is beneficial to the importer, since he pays for the goods actually delivered, which is confirmed by documents of title. In addition, the costs of carrying out the collection operation are low, and, therefore, the bank commission is low.
The collection form has certain disadvantages, the main of which is the considerable length of time to receive payment. Due to the need to send documents between banks, the period of their payment or acceptance may take from several weeks to a month or more. In addition, the payer may refuse to pay or accept the documents submitted to him. In this case, the exporter will incur additional costs associated with the storage of goods, the search for a new buyer in the same or another country, the transportation of goods back to the country.
Difficulties in receiving payment may also arise in connection with the characteristics of the currency regulation of individual countries. In particular, non-payment of documents may occur due to the absence of permission from the payer to transfer currency abroad. Such difficulties will also entail additional costs of the exporter. Such problems should be solved at the stage of preparation and conclusion of the contract.