Uniform Rules for Collections (URC)
A list of guidelines meant to assist in addressing operational issues and support bankers, buyers, and sellers collect money.
The Uniform Rules for Collections (URC) is a list of guidelines meant to assist in addressing operational issues and support bankers, buyers, and sellers collect money.
First introduced by the International Chamber of Commerce (ICC) in 1956, it provides a mix of advocacy, solutions, and standard setting. The body promotes cross-border trade, responsible business conduct, and a global approach to regulation.
Apart from providing market-leading dispute resolution services, the ICC is the largest business organization in the world. So, the ICC advocates for international trade and responsible behavior and offers other services for businesses.
The ICC released the latest version of the rules, the URC 522, in 1995.
The URC 522 addresses disputes and problems that the parties involved in payment collection, including bankers and businesses, face. Thus, the primary bank must include a separate document, which is essentially the collection instruction.
This is done to explain the rules around the collection process, which includes defining the reason and procedure.
The issues targeted in the rules drafted come from daily experiences that banks go through. They are related to documents against acceptance (D/A) and documents against payment (D/P).
Documents against acceptance detail an arrangement between the importer and exporter and are related to documenting ownership.
With that, both parties agree that the importer/buyer receives the ownership document from the bank after the bill of exchange is paid or they reach an agreement to pay the seller later.
Documents against payment are similar, but they describe an agreement between the bank and the exporter. Thus, the importer does not receive ownership documents until they pay a draft.
Understanding URC 522
The URC 522 comprises 26 articles which are categorized into 7 sections. Before outlining each article, it may be helpful to briefly define a couple of terms around the collection and the documents referenced.
The idea of “collection” refers to banks appropriately handling documents as per the instructions they receive.
According to a detailed text of URC 522, the documents involved are labeled as financial and commercial documents. These terms are outlined below:
1. Financial documents: Related to money
Bills of exchange, cheques, and others related to gathering payments
2. Commercial documents: Related to trade activity
Invoices, documents related to transportation, and others that are not financial. There are also two types of collections mentioned, which are clean and documentary collections:
A. Clean collection: Collecting financial documents without commercial documents
B. Documentary collection: Collecting financial documents with commercial documents OR collecting commercial documents without financial documents.
Thus, the 7 sections of the URC 522 outline the rules around the collections that take place and are broken down into:
1. General provisions and definitions
Article 1: Application of URC 522: introducing collection instruction
Article 2: Definition of collection: describing financial and commercial documents
Article 3: Parties involved in collection: the principal, remitting bank, collecting bank, collecting bank, presenting bank, and the drawee – defined in the URC text
2. Form and structure of collections
Article 4: Collection instruction: terms and conditions that the bank must follow
3. Form of presentation
Article 5: Presentation: how presenting bank provides documents to the importer
Article 6: Sight/acceptance: payment or acceptance without delay, or present draft around the maturity date
Article 7: Release of commercial documents: with draft payable later or not
Article 8: Creation of documents: collecting bank/importer makes own documents (occasionally)
4. Liabilities and responsibilities
Article 9: Good faith and reasonable care: the court would resolve any conflicts
Article 10: Documents vs goods/services/performances: banks do not deal with goods unless there is a specific agreement
Article 11-14: various disclaimers
i) Disclaimer for acts of an instructed party
ii) Disclaimer on documents received
iii) Disclaimer on the effectiveness of documents
iv) Disclaimer on delays, loss in transit, and translation
Article 15: Force majeure: delays from unforeseeable circumstances that prevent fulfilling a contract
5. Payment
Article 16: Payment without delay
Article 17: Payment in local currency
Article 18: Payment in foreign currency
Article 19: Partial payments
6. Interest charges and expenses
Article 20: Interest
Article 21: Charges and expenses
7. Other provisions
Article 22: Acceptance: collecting/presenting bank confirms completeness and correctness of the acceptance of any draft
Article 23: Promissory notes and other instruments: collecting/presenting bank is not liable for the authenticity of signatures
Article 24: Protest: collection instruction advises on what to do if a protest or other legal procedure occurs
Article 25: Case-of-need: an entity that can be reached if needed is noted down (occasionally)
Article 26: Advises: provides help on the content and applies various pieces of advice
Electronic Uniform Rules for Collections (eURC)
URC 522 is considered to be somewhat limited when it comes to its relevance for electronic transactions. With technological advances in society today, the digital realm of trade finance has been growing.
So, the ICC has developed new rules to go along with the URC 522, namely eRules, to cover the electronic side.
These rules have been newly updated for both URC 522 and the Uniform Customs and Practice for Documentary Credits (UCP 600). UCP 600 is a collection of rules on credit and financing trade.
So, eRules adjust to new technologies as they are introduced while the digital sector in finance grows. They will likely lead to automated systems for checking compliance with credit and other functions.
The eRules provide many benefits and its applications ease policies and processes for transactions that are done electronically.
These are usually about credit, collecting payments, and more related to the digital aspect. For instance, the coverage of the rules includes the support of electronic records and payments for those transactions.
Also, the eRules enhance and support trade finance between various countries and areas of the world, regardless of the economic and judicial systems that are in place.
Thus, it is considered to be an important addition to the area of digital finance and the protection of entities, like buyers, sellers, and banks, and an essential contribution made by the ICC.
FAQs
The uniform rules for collections are important because they detail the roles and responsibilities during the collection of money owed to each of the entities involved, which is an important part of trade finance.
The two types are financial and commercial documents, as described in the Understanding URC 522 section above.
A principal is an entity that authorizes a bank to proceed with the handling of a collection.
- Remitting bank
exporter’s bank and they remit, or hand over, the bill for collection.
- Collecting bank
buyer’s bank and they present the bill and documents to the buyer. It is usually a correspondent of the remitting bank, acting as an agent, but can also be any other bank.
Researched and authored by Laila Al-Eisawi | LinkedIn
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