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Simple English definitions for legal terms
collection item
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A quick definition of collection item:
A collection item is something that a bank takes from a customer, like a piece of paper saying they owe money, but the bank doesn't give the customer credit for it until they actually get paid. There are different types of collection items, like drafts, which are written orders for someone to pay money, and overdrafts, which happen when someone spends more money than they have in their account. Drafts can be different kinds, like sight drafts that can be paid right away, or time drafts that have a specific payment date. The word "draft" can also mean when the government makes people join the military, or when someone writes a first version of something, like a contract.
A more thorough explanation:
A collection item is an item, such as a documentary draft, that a bank takes for a customer's account but does not credit until payment for the item has been received. For example, an export draft is a type of collection item that a domestic seller draws on a foreign buyer, directing the buyer to pay the trade amount to the seller or the seller's bank.
Another example of a collection item is a sight draft, which is payable on the bearer's demand or on proper presentment to the drawer. A check is the most common example of a draft.
Collection items are important in banking because they allow for secure and efficient payment transactions between parties. By taking a collection item, a bank can ensure that payment is received before crediting the customer's account.