Can a Finance Company Act as a Remitting Bank?

In documentary collections, banks usually handle the remittance of funds and documents — but does it have to be a bank? What if a finance company steps in to manage the process? Let’s look at how a finance company can act as a remitting bank and how payment can still flow smoothly, even without its own nostro account.

Question

Dear Mr. Old Man,

I have two questions that need your opinion.

1. Can a finance company act as a remitting bank under a documentary collection transaction?
2. Can a collecting bank remit payment using MT103, considering that a finance company normally does not maintain a nostro account?

Thank you.

Yao Zu

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Answer

Dear Yao Zu,

Thank you for your questions. Here’s my response.

Yes, a finance company can act as a remitting bank under a documentary collection transaction. It is more convenient if the company maintains SWIFT relationships with the collecting bank, but that is not a strict requirement. Even without a direct SWIFT connection, the finance company may still perform the role through correspondence or intermediary arrangements.

As for settlement, this is somewhat similar to cases where an exporter sends documents directly to a collecting bank and receives payment through normal SWIFT channels — except that, in this case, the collecting bank remits the funds to the finance company as the remitting entity, which then settles with the exporter after deducting any agreed fees or charges.

If the finance company does not maintain its own nostro account, the collecting bank can still route the funds through a correspondent or intermediary bank, ensuring payment is made as instructed.

In short:

A finance company without its own SWIFT or nostro setup can still participate effectively in a collection transaction — provided that proper correspondent arrangements and clear payment instructions are in place.

Best regards,

Mr. Old Man

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Follow-up Discussion: Applicability of URC 522

A reader has asked whether this type of transaction would fall under URC 522 or be governed by other regulations.

In my view, the transaction can indeed be subject to URC 522. Article 1 provides that URC 522 applies to all collections, as defined in Article 2, where the rules are incorporated into the collection instruction and thereby become binding on all parties.

Article 4(a)(3) further states that, unless otherwise authorized in the collection, banks will disregard any party or bank other than the one from whom they received the collection. This implies that although Article 3 defines a “remitting bank” as a bank, a finance company acting in a remitting capacity—particularly one operating under proper financial or quasi-banking authorization—may still have its collection governed by URC 522 if it expressly incorporates those rules in the instruction.

Even in cases where an exporter sends documents directly to a collecting bank, the covering letter may still indicate that the collection is subject to URC 522. Once that indication is made, the rules would apply to the handling of the documents and payments.

While local laws and contractual terms could supplement the arrangement, URC 522 remains the most relevant international framework for documentary collection transactions of this nature.