As per D.A terms, once the shipping documents along with bills of exchange received by the buyer’s bank, the buyer is informed to accept documents by buyer’s bank. The buyer accepts documents by signing bills of exchange sent by the exporter, agreeing to pay the value of goods shipped as per agreed period of time. (say, 30 days from the date of bill of lading, 60 days from the date of bill of lading or 90 days from the date of bill of lading).
Documents against Acceptance How reliable the terms of payment in exports copyImporter receives original shipping documents by ‘accepting’ bill of exchange. He completes import customs clearance procedures with the said original shipping documents and approach carrier to deliver cargo to him after completion of such import customs clearance.
The payment against sale of goods is effected up on the maturity day mentioned in the bill of exchange.
Documents against Acceptance - Is it safe for seller?
In payment terms, is DA safe for an Exporter? Does importer make payment on maturity of contracted period? How reliable DA terms in exports?
As per my opinion, the legal strength on D.A terms is very week in international legal terms. Ok, if you have a strong business relationship with your buyer, you can ship goods on ‘credit’ basis. A proper study about the buyer’s credit worthiness is a dare need while shipping under D.A.terms.
How to protect exporters (suppliers/sellers) on default of payment of sale of goods by buyer (importer/buyer)?
Most of the countries have credit agencies who provide insurance coverage against default of payment by buyers. You can approach such credit guarantee insurance agencies to cover insurance against such buyers. For example in India, Export Credit Guarantee Corporation (ECGC) is an example for such insurance agencies who protect sellers against default of payment on sale of exported goods.
How does credit guarantee Insurance agencies protect exporters on default of payment by their buyer?
Most of credit guaranteeing insurance companies is under the direct governance of government of such country. These credit guarantee agencies collect confidential financial information against each buyer.
Once after procuring export order by seller, he submits a copy of such business order with an application with credit guaranteeing insurance company to cover insuranceDocuments against Acceptance against such buyer as per the purchase order contracted. The insurance company collects confidential financial status of buyer and gets credit worthiness of such buyer. Based on such credit worthiness of a buyer, insurance company approves credit limit to exporters.
Once after approval from such insurance company, the seller exports his product to the said buyer by obtaining an insurance policy against such buyer. If the buyer default payment on maturity time, the exporter can approach insurance company to reimburse the sale of goods. These insurance company approaches defaulted buyer and demands the compensation, failing which they black list these defaulters and circulate among the exporters where such defaulted buyers can not buy any goods from the country.
In certain circumstances, the insurance company may reject application if the credit worthiness of buyer is not at all satisfactory. Also read Also read Advance payment the best way of terms for business Letter of credit - How does LC work? Is DP terms of payment safe in export business?
In a nutshell, without an insurance cover against an importer (buyer), I do not recommend exporters to supply goods under Documents against Acceptance ( DA terms), unless otherwise the exporter has a satisfactory creditworthiness based on previous experience or strong evidencing proof.
I hope, I have explained about DA terms of payment in simple language.
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