In Documentary Collections terms of payment list and describe the major risks faced by the exporter. ?

In Documentary Collections, the exporter faces several risks associated with the payment process. Documentary Collections are a method of trade finance where the exporter relies on the services of banks to handle the collection of payment from the importer. The exporter entrusts the banks to present the relevant shipping documents to the importer and collect the payment on their behalf. However, there are certain risks involved in this process.

Here are the major risks faced by the exporter in Documentary Collections:

1. Payment Risk: The exporter's primary concern is the risk of non-payment or delayed payment by the importer. Since the exporter relies on the importer's willingness and ability to pay, there is a risk of default or payment delays, which can impact the exporter's cash flow and profitability.
2. Commercial Risk: Commercial risk refers to the risk of disputes arising between the exporter and the importer regarding the quality, quantity, or condition of the goods. If the importer refuses to accept the goods or raises claims, it may delay or jeopardize the payment process, putting the exporter at risk.
3. Documentation Risk: Documentary Collections involve the submission of various shipping documents, such as bills of lading, invoices, and certificates of origin. If the exporter fails to provide accurate and compliant documentation, the bank may reject the collection, leading to delays and potential costs for the exporter.
4. Political and Country Risk: Exporters face political and country-specific risks when conducting international trade. This includes changes in government policies, trade restrictions, economic instability, or currency fluctuations. These factors can impact the importer's ability to pay or create difficulties in the collection process.
5. Legal Risk: Legal risk refers to the risk of non-compliance with applicable laws and regulations governing international trade. Failure to adhere to legal requirements in the export or import country can result in penalties, fines, or legal disputes, which can be costly and time-consuming for the exporter.
6. Currency Risk: In international trade, currency exchange rates can fluctuate, leading to potential losses for the exporter. If the payment is denominated in a foreign currency, the exporter faces the risk of unfavorable exchange rate movements, affecting the actual value of the received payment.
7. Collection Risk: The exporter relies on the bank to present the shipping documents to the importer and collect the payment. However, there is a risk that the bank may not properly handle the collection process, leading to delays, errors, or even non-receipt of payment by the exporter.

To mitigate these risks, exporters can take various measures, such as conducting thorough due diligence on the importer, using secure and reliable banks, ensuring accurate documentation, utilizing appropriate trade finance instruments, and obtaining credit insurance or guarantees. It is advisable for exporters to consult with trade finance professionals or legal experts familiar with Documentary Collections to understand and address these risks effectively.