Lives and Livelihoods

One of the most widely used methods of payment in export trade is by means of the documentary bill or documentary draft. The essence of this type of transaction is that the exporter is willing, after considering the credit risks involved, to ship the goods before payment. But he is not prepared to allow the buyer to take possession of them before payment is assured or before the buyer’s obligation to pay has been established.

The mechanics of the system require the exporter to draw a bill of exchange on the buyer, payable at sight when no trade credit is being extended or payable at some future date to take care of inherent credit terms. The exporter then hands the bill to his bank, together with the documents of title; these comprise at least commercial and customs invoices, marine insurance policy or certificate, and a full set of ocean bills of lading.

The insurance documents and bills of lading an usually in negotiable form: that is, made out in favor  of, or to the order of, the shipper and endorsed by him in blank. These sets of documents are known generally as “ collections”, termed D.O.P.(Documents on Payment) where the documents are to be surrendered to the buyer only upon payment of the bill, or D.O.A.(Documents on Acceptance) where the buyer may receive the documents on his “accepting” the bill – that is, by signing his name across the face of it in acceptance of the obligation that it represents.

These collections are presented to the buyer for payment or acceptance as appropriate, through a banking correspondent in the buyer’s country. In a sight bill the buyer would receive the documents, which allow him to claim the goods at Customs, on payment of the amount due. This is remitted back to the exporter’s bank for his account.

Where a term bill is employed, the buyer would normally receive the documents on acceptance and the bill would be returned to the exporter’s bank to be presented again to the buyer for payment on the maturity date.