Documents Against Acceptance & Documents Against Payment - Bills of Exchange (Hindi) - YouTube

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Namashkar, my name is Mukul and welcome to Asset Yogi

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When an international trade takes place and importer and exporter don't know each other

There is a trust issue

In this case, there can be 2-3 ways through which payments can be paid or received

In that, one way is a documentary credit which is also called the letter of credit

I made a detailed video on this so if you haven't watched it then do watch it.

You'll get the link in the description

2nd way is the documentary collection method

In the documentary collection method, there are 2 methods

1. Documents against payment

2. Documents against acceptance

We'll understand these 2 methods in detail in this video

and we'll understand a flow chart on how the whole workflow goes

So stay tuned till the end to get the concept properly

Let's switch to the blackboard

Firstly, let's see what is the process of payments in export and import

Let's see this is an exporter from China and an importer from India

Importer wants to buy some goods from the seller

There is a trust issue between both

Seller thinks of sending the goods first without payment

And the importer thinks what if I don't get the goods after paying the money

That's why they rely on the banking system

Exporter relies on his bank and importer on his bank

and because the banking system is very robust in the international banking system

So there is a trust between them

So let's say this is a remittance bank and this is a clearing or presenting bank

So the payment can be done through these 2 banks

The first method is documentary credit which is also called letter of credit (LC)

So we already saw the method of letter of credit and I already made a detailed video

So you can watch that video

You'll get the link in the description

Second is the documentary collection method

There are 2 types of methods in the documentary collection

1. Document against payment

2. Document against acceptance

Both of these are kinds of bill exchanges

So document against payment is the site bill of exchange

As this bill of exchange will be presented in front of the importer,

the importer has to do immediate payment

And document against acceptance bill is a type of usance bill

which provides a time period to the importer to do the payment

So both the methods are used. It depends on what suits the importer

If he has money in advance and he can give some immediately,

then he can go with the D/P bill

Otherwise, if he needs some credit period, then he can go with the D/A bill

Now let's see how both of these methods work and let's understand their workflow

Firstly, let's understand the common process of the documentary collection

Firstly, a sales contract is signed between the exporter and the importer

They pre-decide through which method they will go

So as I told you before, immediate payment is to be done by the importer as soon as this DP will be presented in front of the importer

And in DA, you get a time period because this is a usance bill

So I already made a detailed video on types of bills of exchange

So if you haven't watched it then you can watch it

you'll get to know more about the site bill and usance bill

So the link is in the description

So this was the first sales contract

In the first process, the sales contract is signed between the exporter and importer

In the second step, the exporter will ship the goods towards the importer

That means towards the port of the importer's country

But definitely, it didn't reach the port

Once the goods are shipped, the exporter will prepare the documents

In the documents, bill of exchange is there

Then there is the bill of lading which is a very important document

I made a detailed video on the bill of lading so you can watch that video

You'll get to know what all documents are required

Also, I made a detailed video on Incoterms

These are the international commercial terms

International trade is done according to it so you can watch my Incoterms video

Basically, when the exporter will prepare all these documents

like the bill of exchange, bill of lading, invoices, trade documents

So he will go to the remitting bank and will transfer the documents

So the exporter is relying on his bank

After that, the remitting bank will check all the documents and will pass the instructions to the collecting bank

which is there in the importer's country

So the collecting bank can be a branch or associate of the remitting bank

Presenting bank can be separate or collecting and presenting banks can be the same

So the presenting bank can be a separate bank of the importer

So for simplicity, I considered collecting and presenting banks as the same

The process is similar. The collecting bank will transfer the further documents to the presenting bank

So once the remitting bank checked the documents, they will transfer the documents to the collecting/presenting bank

When the documents arrive, meanwhile, the goods also arrive at the port

So let's call it arrival port

It is there in the importer's country

If we talk about India, these goods will reach at a port in India

Till then the documents will reach the collecting/presenting bank

Keep this in mind that the goods reached the port but not to the importer

The importer will only get the delivery of the goods when he will present the documents

Thats why I said that the bill of lading is very important and let me star mark it

This is a receipt for the goods. In fact, the title of the goods

Until the importer will not present the documents of this title on the port

till then, he'll not get the delivery

So till here, the process is same

We saw the 4 steps sales contract, goods shipped

On 3rd, the documents reached the remitting bank from the exporter

and then to the collecting bank

Till here, the process is the same in both D/P and D/A

Now let's understand that in the case of D/P

By mistake, I wrote D/A here

So how does this process works in the case of D/P

So as I said earlier, this is an at sight bill or demand bill

So as the collecting bank will present this bill of exchange in front of the importer

then importer has to do the payment immediately

As you can dee, at sight is written

So as the bill of exchange will be presented in front of the importer,

he has to do the payment first

After doing the payment, he'll get the documents in the next step

That's why it is called documents against payment

So first he will do the payment and then he'll get the documents

Importer goes with document against payment when he doesn't want credit period

So till the time goods will arrive, he'll arrange the payment

Once he gets the documents, he will present those at the port

And in the 7th step, he will receive the goods

Once he received the goods, at the same time

The collecting/presenting bank will transfer the money to the remitting bank

And in the final step, the remitting bank will transfer the money to the exporter

So this was the process of documents against payment

Now let's see what is the difference in documents against acceptance

Here the credit period of 90 days after sight is given

That means the importer will do the payment 90 days after he will accept the bill of exchange

He got a credit period of 90 days

As we saw in the documents against payment, the importer has to do immediate payment to the presenting bank

In this case, firstly, the importer will accept and sign the bill of exchange

To show that he accepted the credit period of 90 days and will do the payment after 90 days

So once he accepted, the documents will be handed over in the 6th step

After the documents will be handed over, he will present them at the port and he will receive the goods

When the goods will be received, he will send the goods to the retailers

Because he doesn't have to do the payment immediately so let's say this is retailer 1, retailer 2

He has multiple retailers

When he will send the goods to the retailers, in exchange, he will start getting the payments also

So he'll start getting the payments 1, 2, and 3

Maybe the payment cycle for them is less than 90 days

So when he'll receive all the payments, he will transfer the money after 90 days to the presenting bank

or to the collecting bank

Once the collecting/presenting bank will receive money after 90 days

that money will be transferred to the remitting bank and the remitting bank will finally transfer it to the exporter

Under documents against acceptance, there is a credit period and that's why we call it usance bill or time bill

And in documents against payment, immediate payment is to be done

So I think I covered the process flow of both documents against payment and documents against acceptance

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