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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Halden Exports ships goods and instructs its bank to collect payment through a documentary collection. The bank will release the shipping documents to the buyer, Varga Ltd, only against payment. Which statement about this arrangement is correct?

The collecting bank gives no guarantee of payment, so Halden Exports bears the risk that Varga Ltd refuses to pay or accept. Banks merely act as agents handling documents under the ICC collection rules. The payment undertaking and UCP 600 apply to letters of credit instead.

  1. AThe collecting bank does not guarantee payment, so Halden Exports bears the risk that Varga Ltd refuses to pay or acceptCorrect
  2. BThe collecting bank guarantees payment once it receives the documents from Halden Exports
  3. CThe arrangement is governed by the UCP 600 rules and the bank must pay if the documents comply
  4. DThe bank becomes the buyer of the goods and takes the credit risk of Varga Ltd

Explanation

In a documentary collection, banks act only as agents handling documents and funds under the ICC Uniform Rules for Collections (URC 522). They give no payment undertaking, unlike an issuing bank under a letter of credit governed by UCP 600. If Varga Ltd refuses to pay or accept, the seller bears the risk and the loss. The statement about UCP 600 therefore describes letters of credit, not collections.

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