Documentary Collections in Trade Finance
Documentary Collections in Trade Finance
What Are Proof of Funds Documents?
Proof of Funds (POF) is a document certifying that an importer or an organization is financially capable to carry out a transaction. A POF is mostly issued by commercial banks assuring the exporter that the importer has sufficient funds to complete the transaction.
Proof of funds is most commonly available in the form of a bank, security, or custody statement. The reason why the Proof of Funds Documents is necessary is to ensure that the funds are accessible and legitimate.
Proof of Funds Documents V/S Commercial Letter of Credit
POF
As discussed above, a POF is nothing but a certificate assuring the exporter that the importer has sufficient funds for the purchase. For example, a buyer wants to buy a car. So, to carry out the transaction, the seller will require proof of funds documents. This will assure the seller that the buyer has funds available for the purchase, but also has legitimate access to his funds. The POF is issued by a verified authority like a bank.
LC/DLC
A Commercial Letter of Credit is majorly used in international trade where the issuing bank provides the exporter with a monetary guarantee. A LC/DLC is issued by the issuing bank to the advising bank. Once the LC/DLC is verified by the advising, it is then shared with the exporter. This letter assures the exporter that he will be paid as per the agreed terms and conditions once he shares documents like lading documents.
Documentary Collections Qualified as POF
Below are the documents that can be qualified as POF:
Name and address of the bank
Official bank statement
Document containing money market statement and balance
Document containing a balance of funds in savings and checking accounts
Financial statement approved by the bank
Online banking statement
Signature of an authorized bank employee
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