URC 522 Case Studies on Documentary Collections
In a collection no bank promises to pay. These cases show what each bank must and need not do.
In a documentary collection the banks move documents and money, but none of them promises to pay. That single fact settles most URC 522 questions. The banks must act in good faith and with reasonable care (Article 9), follow the collection instruction, and report back. They do not examine documents for compliance and they carry no credit risk on the buyer.
The cases below use an Indian exporter's bank as the remitting bank and the buyer's bank abroad as the collecting and presenting bank. Each case ends with the answer and the article that decides it.
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The Parties and Terms Used Below
- Principal
- The exporter who hands the collection to its bank (Article 3).
- Remitting bank
- The principal's bank, which sends the documents abroad with a collection instruction.
- Collecting and presenting bank
- The bank abroad that receives the documents and presents them to the drawee. Often the same bank does both.
- Drawee
- The buyer, to whom the documents are presented.
- D/P (documents against payment)
- Documents are released only when the drawee pays.
- D/A (documents against acceptance)
- Documents are released when the drawee accepts a usance bill of exchange, promising to pay on a future date.
Case 1: The Buyer Accepted, Then Did Not Pay
A bicycle-parts maker in Ludhiana ships to a buyer in Nairobi on D/A 90 days sight. The collecting bank presents the bill, the buyer accepts it and takes the documents, clears the goods, and does not pay at maturity. The exporter asks its bank why the Kenyan bank is not paying.
Answer: neither bank owes the money. Under URC 522 the banks assume no liability for the drawee's solvency or performance (Article 13) and act on the principal's risk when using other banks (Article 11). The collecting bank's duty is to send an advice of non-payment without delay, with reasons if it can get them (Article 26). It will protest the dishonoured bill only if the collection instruction told it to (Article 24). The exporter's claim is against the buyer on the accepted bill, and against any credit insurance it bought. A bank that financed the bill looks to the exporter for repayment.
Case 2: D/P Instruction on a 60-Day Bill
A Moradabad brassware exporter draws a bill payable 60 days after sight and marks the collection instruction "deliver documents against payment". The buyer in Hamburg says it will pay at maturity and wants the documents now.
Answer: the documents stay with the presenting bank until the buyer pays. Article 7 says a collection should not contain a future-dated bill with D/P instructions, and that where it does, documents are released only against payment. The fix is upstream: the instruction must clearly say D/A or D/P, because banks will not examine documents to work out what the principal meant (Article 4).
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Case 3: Interest Refused, Goods Sent to the Bank, No Instructions
Three short situations that all appear in one collection that went wrong.
- 1
The drawee pays the principal but refuses the interest
The presenting bank may release documents against the principal alone, unless the instruction expressly says interest may not be waived (Article 20). The same logic applies to charges (Article 21). If waiver is barred, the bank holds the documents and tells the remitting bank promptly.
- 2
The exporter consigned the goods to the collecting bank without asking
Goods should not be sent to a bank's address or consigned to its order without its prior agreement (Article 10). The bank has no obligation to take delivery, store or insure them. If it does act to protect them, it does so at the principal's cost and without liability for their condition.
- 3
The buyer neither pays nor accepts, and the exporter goes quiet
The presenting bank advises non-payment. If it receives no instructions within 60 days after that advice, it may return the documents to the remitting bank without further responsibility (Article 26).
- 4
The buyer offers part payment
In a documentary collection, part payments are accepted only if the instruction allows them, and unless it says otherwise the documents are released only after full payment (Article 19).
Who Is Responsible for What
Must the collecting bank check the documents for discrepancies?
Answer under URC 522
No. It checks only that the documents received appear to be those listed in the instruction, and reports any missing
Article
12
Must a bank accept a collection?
Answer under URC 522
No. It can decline, but must tell the sender promptly
Article
1
Is a bank liable if the drawee does not pay?
Answer under URC 522
No
Article
11, 13
Will the bank protest automatically?
Answer under URC 522
No, only on express instruction
Article
24
What if no instructions follow a non-payment advice?
Answer under URC 522
Documents may be returned after 60 days
Article
26
| Question | Answer under URC 522 | Article |
|---|---|---|
| Must the collecting bank check the documents for discrepancies? | No. It checks only that the documents received appear to be those listed in the instruction, and reports any missing | 12 |
| Must a bank accept a collection? | No. It can decline, but must tell the sender promptly | 1 |
| Is a bank liable if the drawee does not pay? | No | 11, 13 |
| Will the bank protest automatically? | No, only on express instruction | 24 |
| What if no instructions follow a non-payment advice? | Documents may be returned after 60 days | 26 |
How the IIBF Exam Tests This
IIBF lists URC with case studies. A typical question describes a collection gone wrong and asks who bears the loss or what the bank should have done. The trap is to import LC thinking: candidates assume the collecting bank must examine documents within five banking days or pay when the buyer defaults. Neither is true under URC 522. If an option gives a bank a payment obligation in a collection, it is almost always wrong.
FAQs
Is the collecting bank liable if the buyer does not pay under D/A?expand_more
No. Under URC 522 banks take no responsibility for the drawee's payment (Articles 11 and 13). The bank must advise non-payment without delay; the exporter's claim is against the buyer.
What happens if a usance bill is sent with D/P instructions?expand_more
Article 7 says this should not happen, and if it does, the documents are released only against payment. The buyer gets them at or after maturity, when it pays.
How long does a presenting bank hold unpaid documents under URC 522?expand_more
If it gets no instructions within 60 days after its advice of non-payment or non-acceptance, it may return the documents to the bank it received them from (Article 26).
Can the presenting bank waive collection charges?expand_more
Yes, if the drawee refuses them, unless the collection instruction expressly says they may not be waived (Article 21).
Next steps
- LC vs Collectionarrow_forward
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