Under Bills for Collection method of international trade payments, since a bank acts as an intermediary, the seller does not have to depend on the buyer only. But here the bank’s role is only in the process of routing the documents of transport/title along with other documents. The seller draws documents in terms of the contract that it has entered into with the buyer, hands over those documents to the bank with clear instructions as to the mode of collection- whether goods are to be delivered against payment or against acceptance of documents and a bill of exchange on the basis of which he can get payment after due date of exchange and if for instance that bill is not paid for some reason the seller can fall back on the Bill of Exchange law and can take action under that law to get payment.
While the buyer does not have to pay under this system until he has received documents evidencing transport of goods from the seller for being delivered to the buyer and gets title of goods in the form of bill of lading which can be transferred in favor of the buyer after having paid for goods if the terms of collection are documents against payments or to accept a bill of exchange if the documents are to be handed over against acceptance of such a bill of exchange, the seller has, therefore, a reasonable expectation of getting paid for. Documents will be handed over only after one of the two things has been done. He, however, has no guarantee of the bank assuring payments if he has complied with the terms and conditions. From the seller’s point of view this is not a very satisfactory system of payment for not only has he no backing of a guarantee of a bank, but he can also not negotiate these documents and get bank finance for raising funds for undertaking his part of the contract. Bills for collection are becoming more and more popular in Europe because of high costs of letters of credits not just from the importers point of view but also from the exporters point if view. They are open to a lack of security in obtaining payment.