When the Collecting Bank Becomes the Drawee: A Quiet but Dangerous Shift in D/A Collections

Introduction

Most documentary collections behave themselves. Roles are clear, risks are understood, and the collecting bank stays where it belongs—in the middle, passing documents, not carrying obligations.

But occasionally, a small detail slips through. A draft is drawn on the wrong party. Nothing looks dramatic, yet the legal position changes completely. And just like that, the collecting bank may find itself no longer an intermediary, but a potential payer.

This case is a good reminder: in collections, who the draft is drawn on is not a formality—it is everything.

Question

Dear Mr. Old Man,

How are you doing?

I have a case that needs your expert opinion.

We, as the collecting bank, have received a D/A collection from an Indian bank. The cover letter instructs us to release the documents against acceptance. However, the draft is drawn on our bank instead of the importer.

Can we release the documents to the importer against their acceptance?

Thank you.

Best regards,

HN

_______

Answer

Dear HN,

Thank you for your question.

In a documentary collection, any draft is normally drawn on the importer (the drawee), not on the collecting bank.

Under a D/A collection, the collecting bank releases documents to the importer against the importer’s acceptance of the draft. In such cases, the bank acts purely as an intermediary and bears no payment obligation if the importer fails to pay at maturity.

In your case, however, the draft is drawn on your bank. This makes your bank the drawee, which fundamentally alters your position. If the draft were to be accepted, your bank could become directly liable to pay at maturity, regardless of whether the importer provides funds. This exposes the bank to significant and unintended risk.

Therefore, you should not release the documents against the importer’s acceptance, as such acceptance has no legal effect on a draft drawn on the bank.

The appropriate course of action is to contact the remitting bank and request amendment of the collection instructions, specifically to replace the draft with one drawn on the importer.

If no clarification or amendment is received, your bank has the right to refuse to handle the collection in accordance with URC 522 sub-articles 1(a) and 1(b).

Only in exceptional circumstances—such as where full cash cover or equivalent security is obtained to your bank’s satisfaction and subject to internal approval—should the bank consider proceeding. Even then, this should be treated strictly as a risk-mitigated exception, not standard practice.

I hope this clarifies the issue.

Best regards,
Mr. Old Man