Export Collections Financing: What does purchasing a bill mean?

The exporter may ask his bank for finance against a collection bill. This will allow him to be flexible in the payment terms he can offer to his buyers.
Purchasing a bill means that the bank will advance to the exporter the bill amount. When payment is received from the “collecting bank” (a bank in the drawee’s   country which is instructed to collect payment from the drawee), the bank will charge the exporter’s account with interest for the exact number of days the bill has been outstanding in the process of collection.
When the exporter allows his buyer to make payment at a later date or grants credit terms, the exporter can approach his bank for an advance against the collection bill.
Bank’s considerations before deciding to purchase a bill:
The financial standing of the exporter
The (up-to-date) credit status reports on the buyer (from their bankers)
Term of the bill – Documents against Acceptance OR Documents against Payment
Whether the exporter (through the bank) retains control of the goods until the buyer pays
Country to which the goods are being exported
Amount of the bill
Payment record of the drawee
The political, economic and legal conditions in the importing country
Whether there are any exchange controls or similar restrictions in the importing country
The exporter must have signed a “Trade Financing General Agreement “. This confirms the fact that the “purchasing bank” has “recourse” to the exporter if the buyer fails to pay the bill (i.e. the bank can debit the exporter’s account in refund without needing the exporter’s approval). If the transaction is covered by a policy taken out by the exporter with a government trade insurance agency, this will enable the bank to be largely secured (IF the policy is assigned to the bank).
 
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