D/A 60 Days: Buyer Refuses to Accept Documents
Samil Machinery shipped USD 800,000 of equipment to a Vietnamese buyer under D/A 60 days. The exporter's bank sent the documents to the buyer's bank. The buyer's bank refuses to release the documents because the buyer has not accepted the draft; the goods are at Ho Chi Minh port and demurrage is USD 1,500 per day. The buyer says it will accept only after inspecting the goods on site. The exporter has no L/C, no export credit insurance, and the buyer is a new customer. The exporter's bank suggests changing the collection instruction to “documents against payment” or arranging a bank guarantee from the buyer. The exporter's foreign currency account has received no proceeds. The shipment was made 30 days ago; the export declaration shows the payment term as D/A 60 days. The exporter asks whether it can simply leave the goods at the port and wait.
1. Explain the risk structure of D/A 60 days and the role of the exporter's bank and the buyer's bank. Why does the buyer's bank refuse to release documents?
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D/A is a documentary collection, not a payment guarantee. Under D/A 60 days, the buyer must accept a draft payable 60 days after acceptance (or after sight, depending on the instruction) before the buyer's bank releases the documents. The buyer's bank acts as a collecting agent: it follows the exporter's instructions and holds the documents, but it does not guarantee the buyer's credit or pay the exporter if the buyer refuses.
The buyer's bank refuses because the buyer has not accepted the draft. Acceptance is the buyer's promise to pay at maturity; without it, the bank has no authority to release the documents. The exporter's bank merely forwards documents and instructions; it cannot compel the buyer's bank to release them. The exporter therefore retains the goods risk-demurrage, storage, deterioration, and loss-while the buyer has not yet taken title.
2. What options does Samil have to get the goods released or recover value, and what are the trade-offs? Consider changing to D/P, a bank guarantee, finding a new buyer, and re-shipment.
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Options include:
- Change the collection instruction to D/P or cash against documents. The buyer must pay immediately to obtain the documents. This improves the exporter's position but the buyer may still refuse.
- Negotiate a bank guarantee or standby L/C from the buyer's bank. This adds bank risk and cost, and the buyer may not cooperate.
- Find a new buyer in Vietnam or a nearby market. This can reduce demurrage and salvage value, but the documents and export declaration may need amendment, and the new buyer may demand a discount.
- Re-ship or return the goods. This stops demurrage but is expensive and may damage the equipment.
- Pursue legal action in Vietnam. This is slow and costly and does not solve the immediate port problem.
- Check export credit insurance. Samil has none, and a policy generally cannot be issued retroactively to cover a shipment already made.
The trade-off is between demurrage of USD 1,500 per day, a discounted sale to a new buyer, and the cost of re-shipment. Leaving the goods at the port and waiting is usually the worst option because demurrage and risk accumulate daily.
3. What are the export-proceeds reporting implications if the buyer never pays, and what should Samil do with its bank and the foreign exchange authorities?
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The export declaration states D/A 60 days, so the bank monitors whether USD 800,000 is collected within the expected period. If the buyer never pays, Samil must not simply leave the receivable open indefinitely. It should document the non-payment and discuss with its bank whether to extend the collection period, amend the export declaration, or report non-collection under the foreign-exchange rules. The bank may require evidence of collection efforts, legal action, or a new sales contract.
If the goods are sold to a new buyer, the export declaration and collection instructions should be amended to match the new terms. If the receivable is ultimately written off, Samil should follow the bank's write-off and reporting procedures and keep records for tax and FX audits. Failure to report non-collection can lead to restrictions on future export financing and foreign-exchange transactions. Samil should also preserve the draft, collection instructions, correspondence, and port/demurrage records.