QUESTIONS ABOUT D/P AT xx DAYS FROM B/L DATE and CLEAN COLLECTIONS

QUESTION

Dear Mr. Old Man,

I have some questions to ask you:

1) Why do banks reluctantly accept D/P 90 days after B/L date?

2) Why do banks provide clean collections of checks only, and not bills of exchange?

Best regards,

————–

ANSWER

Hi,

1) Why do banks reluctantly accept D/P 90 days after B/L date?

According to ICC Opinion R328, use of the collection term “90 days D/P” should be discouraged as an improper term. The correct interpretation of this term would mean that the drawee would accept the documentation for payment at a future date, but the documents could not be released until such time as the payment was made.

Notwithstanding that the term “90 days D/P’ is an improper term, it has been used in practice. We sometimes come across collections with drafts drawn payable at a future date with instructions that documents are to be released against payment. This is a variety of D/P term which is called “Delivery of documents against payment of a drafts drawn payable at a future date.

The collecting bank should obtain the drawee’s acceptance of the draft and retain the accepted draft and commercial documents until the drawee pays the draft at maturity. The collecting bank should bear in mind the key word “Document against PAYMENT” and only release the documents upon payment.

CONCLUSION

Perhaps some banks are reluctant to accept D/P xx days collection just because they do not know how to handle this type of collection.

2) Why do banks provide clean collections of checks only, and not bills of exchange?

Clean collections are collections of financial instruments including checks, bills of exchange, promissory notes or payment undertakings … Clean collections do not include commercial documents (invoice, transport documents…). So, it is because of the absence of commercial documents that these collections are referred to as clean collections.

I think banks now accept to handle collections of not only checks, but also bills of exchange and other financial instruments.

Best regards,

Mr. Old Man