WHAT DOES "DP 90 DAYS FROM BL DATE" MEAN?
Thursday, July 28, 2011 3:04:47 PM
URC 522 - Article 2 (a) states:
"Collection" means the handling by banks of documents as defined in sub-article 2(b) in accordance with instructions received, in order to:
i. obtain payment and/or acceptance, or
ii. deliver documents against payment and/or against acceptance
My query is:
1. What is the different between to obtain payment and DP?
2. Can you translate a collection instruction " DP 90 days from BL date" ?
1) What is the difference between “to obtain payment” and “deliver documents against payment” in the context of Article 2 URC 522?
A “Collection” can be defined as the collection of a specified amount from the buyer/drawee against delivery of financial and/or commercial documents. There are two types of collection:
(a) Clean collection which means collection of financial documents not accompanied by commercial documents;
(b) Documentary collection which means collection of (i) financial documents accompanied by commercial documents; or (ii) commercial documents not accompanied by financial documents.
Under a (at sight) clean collection, the collecting bank is instructed to obtain payment (at sight) from the drawee (no commercial documents delivered).
Under a (D/P) documentary collection, the collecting bank is instructed to deliver the documents against payment.
2) What does the term “D/P 90 days from B/L date” mean?
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.
I hope it is clear.
Mr. Old Man
From Ratha Nhem
That s a clear explanation, Mr.Old Man. I still doubt that if document is picked up by the drawee before maturity date said 90dys from bl date, does the collecting bank make a payment immediately or block the money pending for payment at its maturity date?
From Mr. Old Man
Exactly, the collecting bank is authorized to deliver the documents only when payment is made AT MATURITY.
The disadvantage of this type of payment and delivery is that the underlying goods may arrive at the destination before maturity date. If this is the case, the drawee is unable to take delivery of the goods if the collecting bank insists that it deliver the documents only when payment is made at maturity.
Some prudent banks would ask for the remitting bank’s further instructions whether it is authorized to deliver the documents against payment before maturity. However, most of banks hold payment until due date.
As far as I know this type of payment and delivery may be necessary as a result of the exporter’s foreign control requirements and the term of payment is much shorter, say, D/P 45 days from BL date.
Last but not least, if the collecting bank strictly complies with the delivery instructions, i.e., only deliver the documents against payment at maturity, it still assumes no responsibilty for any delay in the clearnce of the goods which arrive at the destination before maturity date.