CASE STUDY: DOCUMENTARY COLLECTION

By Bar Demirel

An Importer in Egypt entered into a sales & purchase contract with the Exporter, a producer of seeds in Turkey for US$70,000 on FOB basis. The method of payment is by D/P. When the goods was ready, the Importer requested the Exporter to pass the container load of goods to his forwarder in Turkey. After the Exporter transferred the goods to the forwarder, it issued an Bill of Lading (also commonly known as House Bill of Lading or Freight Forwarders Bill of Lading) to the Exporter. The Exporter prepared a collection Instruction and attached the BL together with other documents such as Invoice and Packing List and submit them to his Remitting Bank. The Exporter requested the Remitting Bank to send the documents to the Importer in Egypt and collect payment on their behalf. The Remitting Bank forwarded the documents to the Collecting /Presenting Bank for it to collect payment from the Importer. The Collecting Bank presented documents to the buyer on a sight draft, which constitutes a formal demand for payment. For whatever reason, the buyer refused to make payment and take up the documents. The goods went into storage while the exporter tried to find another buyer. By the time the exporter found another buyer, moisture had seeped into the container and the seeds began germinating. The exporter hastily found another buyer and accepted %90 discount.

Questions

1. What is the problem?

2. What D/P means at this transaction?

3. What are the risks for the Exporters in this method of payment?

4. What are the options of the exporter when buyers become unable or unwilling to pay?

5. What would be the best method of payment in such type transactions?

PLEASE HELP <3