What are risks of making air shipments when using documents against
payment method?
Documents Against Payment (D/P) is apayment method used in
international trade transactions.
This
payment method has couple of alternative names such as documentary collections,
cash against documents, CAD and documents against acceptance.
There
are various advantages of using this payment method in export and import
operations.
Some
of the advantages of documentary collection payment method can be mentioned as
follows:
· Documentary collection payment method is easy.
· Documentary collection is relatively a cheap payment option
comparing to letters of credit.
· Documentary collection is a fast international payment type
comparing to letters of credit.
Despite
all of these advantages stated above, documentary collection payment has couple
of disadvantages, which have to be burdened by the exporters.
Documentary
collection payment method inherits greater risks comparing to letters of
credit, bank payment obligation and bank guarantees.
Banks
have very limited obligations against exporters.
What are risks of
documentary collections for exporters when the shipment effected via air
transportation?
The
main risk of the documentary collection for the exporters is that under the air
shipments the goods could be delivered to the final buyer without the need of
the original documents.
If
the importer is a fraudulent company, then they would never apply to presenting
bank in order to collect the original documents. Instead importer could apply
to the transport company and gets the goods by simply proving his identity.
Alternatively
fraudulent importers leave goods at the import customs. During this period they
do not reply to exporter's calls. They simply cut all their communications with
the exporting companies.
They
act in a such way because untouched goods, which have been waiting at the
import customs, will be sold out in auctions after a reasonable time. The
waiting period will vary from one country to another but it would be logical to
expect a 3-6 month period.
Example
: Real life situation
We are a small exporting company located in Morocco. We have made a shipment to
a new customer in France against a mixed payment. According to sales contract
conditions payment should have been made 50% in advance and 50% documents
against payment.
We
have received the advance payment and make the shipment via air. Although we
have sent all the shipping documents via bank under documents against payment,
we have never received the remaining 50% payment.
We
have waited 15days after we have presented documents. Then we asked to our
customer the remaining balance payment. They claimed that the payment has been
made. But our bank confirmed us that no further payment has been
received.
One
week later once again we asked our customer state of the payment. Additionally
our bank sent a swift message to the importer's bank in France. Both of them
have not responded our questions.
At
the same time we have confirmed through our freight forwarder that the importer
has released the good, even if the air waybill has been consigned to the
importer's bank.
Now
we are searching possible ways to get our money by legal means.
Conclusion
:
Documentary
collection payment method is a risky option for the exporters, especially if
the shipment will be effected via air.
Even
if you consigned the air waybill to the name of the importer's bank, it is
possible that the importer company could receive the goods without having the
original shipping documents.
Receiving
some amount of the order total may not be changing the situation.
As a
result exporters should be very careful when working with documentary
collection payment, if shipment will not be sea freight but air or road
transportation.
