The burden of financing a shipment of goods may be carried by the exporter, the importer, or their respective banks. The exporters bank finances the transaction when it discounts his draft drawn on the buyer, for in purchasing the bill the bank pays cash for it or credits the exporter's account with the amount. The procedure is quite similar to that of discounting commercial paper in domestic business. The bill is offered for purchase, and if the credit of the parties as well as the value of the goods proves satisfactory, the bank will deduct the discount charge, deliver the proceeds to the drawer of the draft, and collect the full amount from the drawee. The bank as bona-fide holder of the bill expects to receive payment from the drawee, and, if he dishonors the bill, reimbursement will be demanded from the drawer.

Foreign bills drawn by the exporter may be given to his bank for collection, and in this case the customer does not receive credit to his account until the proceeds of the draft have been remitted from abroad. Compared with a bill held by the bank for collection, a discounted draft may be regarded as a cash item, since the customer receives immediate credit. A further difference between these two instruments is to be found in the legal position of the bank, for it is the owner of the purchased bill, while in the forwarding of a collection item it is acting merely as an agent of the exporter.

Collection items may cover all kinds of foreign-exchange transactions such as the handling of shipments, loans, remittances, and insurance, but for the purpose of this chapter only the first need be considered. A bill is forwarded to the bank for collection rather than for purchase, when the exporter has sufficient capital to finance the transaction himself and is thus able to save the discount charge. At times the bank is unwilling to buy the bill outright because the credit standing of the parties does not warrant this step, or the underlying merchandise is not readily marketable.

Both discounted and collection bills are forwarded in much the same manner. They are transmitted to a foreign correspondent bank, which presents them to the drawee, who accepts or pays, whichever the case may be, and then the funds are either remitted to the American bank or credited to its account. Upon receipt of the cash or the credit, the American bank deducts the charges for collection and turns the remaining proceeds of the bill over to the exporter.

The burden of financing a shipment of goods may be carried by the exporter and his bank jointly by what is known as an advance collection. The bank may receive the bill for collection, and use the instrument as collateral to lend the exporter about 70 or 80 per cent of the face amount. When the draft is finally collected the bank first reimburses itself for the advance, interest, and collection charges, and then delivers the balance to the exporter.

Credit for financing a foreign transaction is also supplied by the exporter's bank through what is known as a refinancing acceptance. Under this method the exporter and his bank enter into an acceptance agreement. In accordance with the terms of this contract the exporter draws his draft on the importer and surrenders this instrument, together with the accompanying documents, to his bank, which forwards them for collection. In return the exporter is permitted to draw a clean time draft on the bank which accepts it. The instrument then becomes a banker's acceptance which the exporter may sell in the open market.