Documents against acceptance

Documents against acceptance
See also
Reimbursing bank Notice of cancellation Ocean bill of lading Delivery note Confirmed letter of credit Advising bank Transferable letter of credit Cheque requisition Counter guarantee

Documents against acceptance (D/A) is a documents which is signed by the buyer and importer, in a situation where the bank releases the documents to the buyer or importer before accepting the bill of exchange guaranteeing payment at a later date. In documentary collection the Bank acts as custodian and makes endeavor to be ensured that payment was received even that is responsible only for the proper execution of the collection instructions and do not undertake to pay the seller themselves . The collecting bank meets its obligations after approval of the project and provides documents for a drawee. Then it should inform the remitting Bank about the payment date and keep the project until that date. After that date they should transfer the proceeds to the transferring bank to debit the customer's account.

Documents against Acceptance are subject to the Uniform Rules od Collections, Brochure numer 332, revised in 1978, of International Chamber of Commerce in Paris.

See also: collecting bank

Drawee's non-payment

If drawee refuses realising payments on time, the collecting bank will be able to take further action in accordance with the collection schedule which are as following:

1. Advise non-payment
2. Protest for non-payment if requested
3. Contract the case of need if requested
4. Store and insure the goods if requested

Process of the documents against acceptance

In the process four entities are involved: the seller, the buyer and remitting and the collecting Bank. The process consist of following stages:

1. First of all, the buyer gets the goods shipped by the seller
2. Remitting Bank gets handed documents and collection instructions from the seller
3. Collecting Bank receives instructions and documents sent by remitting Bank
4. The instructions are intended to make the documents available to the buyer only with the consent of the buyer
5. The buyer accepts the project and then receives the Bank's confirmation of the project acceptance date
6. Collecting Bank sends shipping documents to the buyer
7. Subject to the buyer's instructions and available funds at maturity, the collection bank charges the buyer after the collection bank sends the proceeds to the remitting Bank
8. Finally, the seller receives the payment from remitting Bank

Examples of Documents against acceptance

• A bill of exchange where the importer’s bank is instructed to deliver the documents only against acceptance of the bill.
• A promissory note where the importer’s bank is instructed to deliver the documents only against acceptance of the note.
• A check where the importer’s bank is instructed to deliver the documents only against the check being honored.
• A letter of credit where the importer’s bank is instructed to deliver the documents only against acceptance of the letter of credit.

Advantages of Documents against acceptance

Documents against acceptance (D/A) is a useful tool for buyers and importers to manage their cash flow efficiently. It offers many advantages:

• It enables the buyer to receive the goods before paying for them, allowing the importer to manage their cash flow.
• It gives the buyer or importer time to inspect the goods before payment is due, allowing them to make sure they are satisfied with the product.
• It ensures that the seller will receive the payment on the due date, as the document is signed by the buyer or importer.
• It reduces the risk of non-payment for the seller, as the buyer or importer has already signed the document.
• It provides security for the buyer or importer, as the documents are released only after the bill of exchange is accepted.

Limitations of Documents against acceptance

• Documents against acceptance (D/A) is a type of payment method that has many limitations. The following are some of the most notable drawbacks:
• The buyer must have a good credit rating and a solid credit history in order for the bank to accept the bill of exchange. This can be difficult for small businesses or buyers with limited financial resources.
• The bank is only responsible for the proper execution of the collection instructions, so the seller may not be guaranteed payment.
• The buyer must accept the bill of exchange before the documents are released. This may be difficult if the buyer is not sure of the quality of the goods and needs to inspect them before payment.
• The transaction may take longer than other payment methods, as the documents must be shipped to the buyer, signed and returned to the seller before payment is received.
• The buyer may be exposed to additional risks if the goods are damaged or lost in transit.
• The additional paperwork, fees and charges involved in the transaction can be costly.

Other approaches related to Documents against acceptance

An introduction to documents against acceptance: Documents against acceptance (D/A) is a document signed by the buyer and importer guaranteeing payment at a later date. There are other approaches related to documents against acceptance, such as:

• Documents against payment (D/P): This is a method of documentary collection where the buyer is required to make payment upon presentation of the documents.
• Documents against sight (D/S): This is a method of documentary collection where the buyer is required to make payment upon presentation of the documents and the documents are released to him upon receipt of payment.
• Open account: This is a method of documentary collection where payment is made without presentation of the documents.

In summary, documents against acceptance (D/A) is one of several approaches related to documentary collection, with the other approaches being documents against payment (D/P), documents against sight (D/S), and open account.

References

• Chatterjee Ch (2015), Legal Aspects of Trade Finance, Routledge
• Hinkelman G. E (2005), Dictionary of International Trade: Handbook of the Global Trade Community Includes 21 Key Appendices, World Trade Press
• Jones A. S (2018), Trade and Receivables Finance: A Practical Guide to Risk Evaluation and Structuring, Springer
• Luk W. K (2011), International Trade Finance: A Practical Guide (2nd Edition), City University of HK Press
• Wells R (2004), Global Credit Management: An Executive Summary, John Wiley & Sons

Author: Angelika Załęska