Direct Collection

Direct Collection

Summary of Direct Collection

A draft, bill of exchange, or similar instrument presented by a bank, acting as agent of the maker or holder, to the drawee for acceptance or payment. The most common form of such collection involves the presentation of a draft to a drawee, with or without accompanying documents such as bills of lading or negotiable warehouse receipts. A draft to which such documents are attached is a documentary draft, and it is understood that the documents will be released by the bank to the drawee only upon acceptance or payment of the instrument, as the case may be. A draft not accompanied by documents is said to be clean. As a practical matter, the maker or holder of a draft for presentation will use a direct collection form supplied by his bank; this form contains instructions such as what the bank should do if the draft is refused, when to collect interest, and at what rate. This form, as well as any accompanying documents, will be sent to a correspondent of the maker's bank in the drawee's city; this local (i.e., presenting) bank will contact the drawee and endeavor to secure acceptance or payment. Depending upon the instructions given in the direct collection form, the acceptance may be held by the presenting bank until maturity, or returned to the maker. If the instructions call for the actual collection of funds, the presenting bank will obtain such funds from the drawee, remitting them to the maker's bank for credit to his account.

(Main Author: William J. Miller)


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