Uniform Rules For Collections

What Are Uniform Rules For Collections (URC)?

Uniform Rules for Collections (URC) is a list of regulations defined to facilitate international transactions and help bankers, buyers, and sellers manage their receivables. The primary purpose of these guidelines is to safeguard the parties from financial risks arising during collections or asset recovery. The URC is also available in the electronic format.

The International Chamber of Commerce (ICC) framed the URC guidelines with its latest version having seven sections on 32 pages. The ICC has defined these rules to streamline the debt collection process for participants. Importers, exporters, and banks are involved in this process.

• Uniform Rules for Collection (URC) are a standard list of guidelines issued by the International Chamber of Commerce (ICC) for debt collection in cross-border trade agreements. 
• It offers reliable assistance to counterparties for the collection of debts, assets, and loans. 
• In 1956, ICC released these rules to protect importers, exporters, and financial institutions like banks. 
• URC 522 has seven sections with 26 articles listed on 32 pages. An electronic format is also available in the digitized system.

Uniform Rules For Collections Explained

Uniform Rules for Collections are ICC guidelines defined to help bankers, exporters, and importers dealing in overseas markets. When sellers and banks wish to recover money from other parties, they may refer to these guidelines. In 1956, ICC defined these rules for the first time for processing documents against payment and documents against acceptance. The latest version of these guidelines, also known as ICC Uniform Rules for Collections 522 (URC 522), was released in 1995.

The two types of debt collection that these rules talk about:-

#1 - Documents against Payment (D/P)

Also known as Cash against Documents (C/D), it is a collection type where banks deliver the documents as they receive the stipulated payments.

#2 - Documents against Acceptance (D/A)

Under the D/A arrangement, the presenter bank will release the documents once the buyer accepts the bill of exchange. Once the bill of exchange is accepted, the buyer can secure the relevant documents to complete the customs formalities.

The Uniform Rules for Collections 522 outline the rules banks must follow while collecting debts from overseas parties. They also attach a sheet that supports the purpose and its process. In addition, disputes can also be addressed through the URC. However, the parties must submit certain documents to ensure this rule is valid. These documents include:

• Financial documents (bills of exchange, documents related to money like checks, and others.)
• Commercial documents (trade agreement, invoices, vehicle, and cargo documents.)

If banks collect the former without commercial documents, it is called a Clean Collection. The collection of all relevant shipping documents for payment is called a Documentary Collection.

Contents

There are seven sections in the uniform rules for collections 1955. Let us look at them:

Section #1 (General Provisions and Definitions)

Article 1, 2, 3 (Introduction, parties’ name, and definition of collection)

Section #2 (Form and Structure of Collections)

Article 4 (It states the collection terms and conditions)

Section #3 (Form of Presentation)

Article 5, 6, 7, 8

Section #4 (Rights, Responsibilities, and Liabilities)

Article 9, 10, 11, 12, 13, 14, 15

Section #5 (Payment Terms)

Article 16, 17, 18, 19

Section #6 (Interest Charges and Expenses)

Article 20, 21

Section #7 (Other Guidelines and Provisions)

Articles 21 to 26

Electronic URC

The electronic URC is a digitized version of the uniform rules for collection. The first version was enforced on July 1st, 2019. It is also called eURC. However, it offers limited protection because the documents presented under eURC must be in the electronic format. In cases where paper documents are presented, they must be accompanied by documents in the electronic format.

The contents of electronic URC are the same as those seen in the paper form. It has 18 pages detailing the 13 article sections. Although they are like the physical format, an additional section includes electronic records and compliances.

Examples

Let us study the following examples to understand URC 522 better:

Example #1

Alan is an importer who deals in cotton garments. He borrowed $40,000 from the bank for a new project. With this capital, Alan purchased a certain amount of cotton from Kolin, who resides overseas. Alan must now repay the debt taken from the bank.

If there are repayment problems or trade conflicts between Alan, Kolin, or the bank, the United Rules for Collections (or URC) will come to their rescue. It will state the terms on how banks can recollect from the importer. Similarly, Kolin must also follow the rules defined by the ICC and honor his commitment. Thus, these guidelines ensure timely repayment of the borrowed amount or goods taken.

Example #2

According to a conference transcript as of September 2022, the International Chamber of Commerce listed new rules for eUCP (Electronic Uniform Customs and Practice for Documentary Credits), eURC, and URDTT (Uniform Rules for Digital Trade Transactions). A panelist Gabriele Katz, Director of Global Transaction Banking at Deutsche Bank, stated the importance of digitalization and emphasized how eURC will be beneficial in the current scenario.

Importance

Let us look at the importance of uniform rules for collections and how they impact trade agreements.

• It protects counterparties from any trade conflicts during the transaction/process.
• Banks can ensure the timely collection of debt from customers and control the chances of bad debts.
• URC promotes consistency and fairness throughout the transaction.
• As debt collection contains a certain level of complexity, the ICC established guidelines to provide certain relaxations to banks.
• It addresses the issues faced by banks during documentation.
• The electronic format of the URC can isolate the risk of fraud and theft.

Frequently Asked Questions (FAQs)

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