International Payments

What is the function of a protest action in a documents against payment collection?

In undertaking a protest action on behalf of a seller, a collecting bank will take note of the buyer's default at draft presentation and allow the lapse of whatever grace period is applicable in the buyer's country. Thereafter, the collecting bank will legally document the fact that a draft, which the bank presented to the buyer on the draft's payment due date, was refused by the buyer. The collecting bank's documentation of the buyer's default on a draft will be formally recorded by a notary. The purpose of a protest is to formally establish the buyer's dishonor and to give legal notice of buyer's dishonor to all interested parties. The form, meaning and results of a protest vary country by country. The results of a protest may be insignificant or very severe depending on the laws of the buyer's country and may range from an unfavorable credit reference for the buyer to immediate cancellation of all credit to the buyer. In some countries, a protest action may even enhance the seller's position as protested drafts typically take precedence over unprotested drafts in a bankruptcy situation and as protest actions can sometimes give the seller a right of executive action against the defaulting buyer's assets.

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