In the context of finance and banking, Inkaso or Collection is a mechanism used to ensure payment in international trade transactions. When a sale and purchase transaction occurs between two parties from different countries, there is often concern about the risk of non-current or uncertain payments. To overcome this, the collection method is one of the choices commonly used by exporters (sellers) and importers (buyers) as a solution to expedite and secure international trade transactions.
The collection process begins when the seller has delivered the goods to the buyer and has also prepared the necessary documents to validate and track the transaction. These documents include invoices, certificates of origin, contracts, proof of delivery, or other documentation relevant to the transaction. Once these documents are prepared, the seller sends them to his own bank, which is often referred to as the seller’s bank.
The following are the main steps that occur in the Inkaso process:
1. Delivery of Documents: The seller sends the transaction documents to the seller’s bank for inclusion. The document includes information about the goods shipped, quantities, conditions of delivery, and agreed terms of payment.
2. Examination of Documents by the Selling Bank: The selling bank will check the documents received from the seller to ensure their completeness and adequacy. This is done to ensure that the documents meet the requirements agreed in the contract between the seller and the buyer.
3. Delivery of Documents to Buyer’s Bank: After the documents have been declared complete and appropriate, the selling bank will send them to the buyer’s bank. At that time, the buying bank will be notified of receipt of these documents and prepare payment according to the agreed terms.
4. Payment by Buyer: The buyer’s bank will notify the buyer of the documents received from the seller’s bank. The buyer must make payments in accordance with the terms agreed in the transaction. This payment will be sent by the buyer’s bank to the seller’s bank.
5. Forwarding Payment to the Seller: After receiving payment from the buyer’s bank, the seller’s bank will forward the payment to the seller, after deducting the fees associated with the collection transaction.
Benefits and Risks of Using Inkaso
The use of the collection method in international payments has a number of benefits that are attractive to exporters (sellers) and importers (buyers). One of the main benefits is the ease of carrying out international trade transactions because it involves the role of banks as intermediaries. The bank plays a role in processing documents related to transactions, thereby reducing administrative burdens and ensuring smooth payment processes.
In addition, collections also help reduce the risk of direct payments from buyers to sellers. In the collection process, payment is made after the buyer has received and examined the documents submitted by the seller. This provides reassurance to the seller that payment will not be made until the goods are shipped and the documents related to the transaction are properly verified.
The collection method also provides trust for both parties in international trade transactions. Buyers feel confident that the documents submitted by the seller have been verified by the bank and comply with the transaction requirements, so they can make payments without worrying about the legitimacy and authenticity of these documents. On the other hand, sellers can rest assured that payment will be made after the documents sent have been received and verified by the bank.
Although collection has a number of benefits, this method is also not without risks. One of the main risks is the potential for delays or incomplete documents that could affect the payment process. If there is an error or discrepancy in the submitted documents, the payment process may be delayed or even cancelled, which can disrupt smooth trading.
In addition, there is a risk of the buyer’s inability or unwillingness to pay after the documents are received. Although collection provides a payment guarantee, there is no 100% guarantee that the buyer will pay within a set time or at all. This can happen if there are financial problems or other problems that make it difficult for the buyer to pay on time.
Therefore, in order to minimize risk and ensure smooth transactions using the collection method, it is important for both parties to comply with the terms and conditions that have been agreed beforehand. In addition, good cooperation between sellers, buyers and banks is also very important in maintaining trust and ensuring a smooth collection process. With the benefits and risks that have been understood, collection can be an effective and reliable payment alternative in international trade.
Inkaso vs Accredited
In international trade, both collection and accreditation (letter of credit) are two payment methods that are commonly used to ensure smooth and secure transactions between exporters (sellers) and importers (buyers) from different countries. While both aim to reduce payment risk, there are significant differences between the two methods:
1. Payment Process
In the collection method, payment is made after the buyer has received and examined the documents submitted by the seller. The buyer’s bank acts as an intermediary to collect payment from the buyer after the documents have been processed. The seller’s bank does not guarantee payment to the seller beforehand.
Whereas in accreditation, the buyer’s bank guarantees payment to the seller’s bank before the delivery of goods is carried out. The buying bank agrees to make payments to the selling bank in accordance with the accreditation requirements, once the selling party has fulfilled the conditions set out in the documents submitted.
2. Payment Security
The security level of collection payments is lower than accreditation because payments are made after the documents are received and checked. If there are problems or discrepancies in the documents, payments can be delayed or canceled.
Meanwhile, accreditation provides a higher level of security for the seller because the buyer’s bank has guaranteed payment beforehand. With accreditation, the seller has certainty that payment will be made if the conditions in the accreditation are met, without having to wait for the receipt and inspection of documents by the buyer.
3. Bank involvement
In collection, the bank only acts as an intermediary to collect payments from buyers and pass them on to sellers. Banks do not guarantee payment beforehand and play a more passive role in transactions.
Meanwhile, in accreditation, the bank has an active involvement because it guarantees payment to the seller based on the requirements in the accreditation. The bank is also responsible for verifying and ensuring that the requirements have been met before making payments.
4. Transaction Risk
One of the collection risks is late payment if there is a delay or discrepancy in the submitted documents. If there is a problem with paperwork or payment, the seller may need to pursue the buyer for payment.
Meanwhile, the risk associated with accreditation is lower because the buying bank has guaranteed payment. The seller has certainty that payment will be made if the accreditation requirements are met.
When choosing between collection and accreditation, both sellers and buyers must consider the desired level of payment security, bank involvement, and risk tolerance. If a high level of trust and security is required, accreditation may be a better choice. However, if the business relationship is strong and trusting, collection can be a more flexible and cost-effective option.
