Nowadays, access to credit ratings enables exporters to gain valuable information on their clients, especially in developed industrial countries. Although it is prudent to avoid risks and insist on payment in advance or by means of secure instruments such as Letters of Credit, a seller may accept other forms of bank payment. If exporters are satisfied with the credit standing of their customers and sovereign risk of the country, they may accept payment by means of a Bill for Collection.
Unlike the Letter of Credit, a Bill for Collection is not usually a guaranteed form of payment. In most cases, the exporter ships the goods and then produces all documents requested by the buyer and submits them to his banker with instructions to process same on collection basis through the buyer’s bank.
Upon receipt, the buyer is notified and calls on his bank to settle the Bill for Collection. If the bill instructions call for release of documents against payment, the importer pays the agreed amount and the Bank releases the documents. The importer’s Bank then channels payment to the exporter via their corresponding bank’s network.
A Bill for Collection may also provide for documents to be released against acceptance of a bill of exchange or promissory note drawn on the buyer. Once accepted, it is retained by the buyer’s Bank until it is paid by the buyer on due date.
There are different types of Bills for Collection with the most common being:
Outward Bills for Collection
Outward Bills for Collection are also known as Bills for Collection Abroad.
Exporters wishing to entrust Bank of Valletta with the collection of their export receivables by means of bills for collection will approach us with a set of commercial documents that the importer requires to claim the merchandise and clear it through customs. The documents are submitted together with instructions on how the documents are to be released and the fulfilment of other conditions.
In a number of cases, it is advisable to rely on a Letter of Credit in order to ensure full and prompt payment for the goods being exported, especially if:
• The exporter is not sure of the importer’s trustworthiness;
• The importer has a track record of delayed or dishonoured payments;
• The importer is located in a country that is deemed to be high-risk.
Bills Negotiated Facility
Exporting firms or companies seeking post-export financing against their exports may be offered a Bills Negotiated Facility which consists of bank advances against export collections at a tenor. In view of the risk element involved, usual lending considerations apply when sanctioning such facilities.
Bank of Valletta relies on the drawees to meet their obligations upon maturity of the bill of exchange so a security margin on the bill’s face value is applied.
BOV considers providing finance against export collection bills when:
• there is evidence of the movement of the related goods and a high probability that these will be paid, and therefore advances would be self-liquidating;
• BOV is in possession of an updated and acceptable Banker’s status report on the credit-worthiness of the importer;
• BOV is immediately informed if the Bill of Exchange is dishonoured and, therefore, advances are being monitored;
• BOV opts to advance against individual export collections since payment or non-payment of collections can be monitored on a transaction-to-transaction basis;
Potential customers intending to make use of this facility will submit details about the importer to enable the Bank of Valletta to obtain a status report from the drawee’s bankers.
The Bank may also consider:
• A right of recourse to the exporter;
• A pledge of export collections as a pre-requisite for making advances against the security of collection bills.
• The Bank may wish to establish an interest in the underlying goods, since the sale proceeds of the goods provide the means to repay the advances.
Finance against collection bills will be more favourably considered when export collection bills:
• are “avalised” or guaranteed by the importer’s bank, and
• relate to exports covered by export insurance.
Inward Bills for Collection
The same service is provided for importers, customers of the bank. An importer who opts for bills for collection to settle his imports would have to provide his counterparty with details of his bankers in Malta. The supplier may or may not use the services of his banker to send the documents on collection basis. He may opt to send the documents directly to us, saving on the charges of his banker. As in outward bills for collection the supplier has to provide clear instructions to the collecting bank to ensure that the payment is collected and relayed within the shortest possible time.
A Bill for Collection goes through various stages. Here we outline the common ones:
• Both importer and exporter agree that payment covering their business deal will be effected through a Bill for Collection.
• The importer informs the exporter about details of his bankers, and they determine the terms of the collection.
• The exporter ships the goods and obtains the necessary agreed documents from the shipper, insurance company, Chamber of Commerce, etc.
• The exporter hands over the documents and instructions to his bankers.
• The exporter’s bank receives instructions from the exporter, checks that the documents are in order and sends them by mail or courier to the importer’s bankers.
• The importer is advised of receipt of the documents by his bankers.
• In the case of a sight bill, the importer pays for the goods upon receipt of documents, which his bankers deliver upon payment.
• In case of an acceptance bill, the importer receives the documents after signing a bill of exchange or a promissory note, which is to be paid on due date.
• Upon payment of the collection, the importer’s bank transfers funds via SWIFT to the exporter’s bank.
• Upon receipt of the SWIFT advice from the importer’s bank, the exporter’s bank credits the exporter’s account.
Applying for Bills for Collection through BOV Trade Finance Centre represent a number of benefits, including:
• We provide a very efficient collection service freeing valuable administrative time for our customers when they handle their bills for collection;
• Our people handling bills for collection are specialists in their field. They operate from a Centralised Unit, and can guide customers on the various aspects of a bill for collection;
• We make use of our international bank network to ensure that collections are handling with the highest level of professionalism and confidentiality;
• An exporter can still exercise a high degree of control over the goods he is exporting through the shipping documents even if the collection remains unpaid;
• Importers find that we can save them valuable time and effort when settling their dues and more importantly they can rely on the integrity and experience of BOV Trade Finance Centre and our correspondents when sorting out problems that come up during their trade cycle.
Benefits of Outward Bills for Collection
• If the standing of the client is satisfactory, a Bill for Collection is significantly cheaper than a Letter of Credit when used to settle trade transactions;
• Both exporter and importer banks act as agents for the exporter to trace and collect payment from the importer;
• Control of the goods exported is retained by the exporter, even when they are paid by the buyer;
• Since the bills of exchange can be discounted at very good rates, post-export finance may be obtained by the exporter if the standing and reputation of the buyers is beyond repute;
• Bills of Exchange duly guaranteed by the importer’s bank can provide the exporter with very competitive and flexible post shipment finance facilities.
Benefits of Inward Bills for Collection
• Goods are shipped to the importer without pre-payment or guarantee of payment;
• Payment is only effected after satisfactory documentary evidence is provided for shipment of goods;
• Collecting (importer’s) banks can effect payment only after settlement by the buyer.
Terms, conditions and exclusions may apply. These are discussed with customers on a case by case basis.