Documentary Collection

By Bhuvanesh Kumar

​Documentary collection is a procedure that allows a seller to give their bank instructions to forward trade-related documents to the bank of a buyer. The instructions are normally accompanied by a request for the documentation to be presented to the buyer for payment. The request and instructions include the terms and conditions that dictate when the documents can be availed to the buyer.

​Imports and exports are considered major contributors to the success of countries and businesses alike. The documentary collection allows for the enablement and easing of import and export processes. Although they do not provide security at the same levels as letters of credit, the costs associated with documentary collection are lower.

​Documentary collection is a procedure that allows a seller to give their bank instructions to forward trade-related documents to the bank of a buyer.

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It allows for the enablement and easing of import and export processes.

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Documentary collection does not provide sellers or exporters many options in case buyers or importers are unable to meet payment obligations.

1. D/P (Document against Payment)

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2. D/A (Document against Acceptance)

​Documentary Collection Types

​D/P.....

​A document against payment collection is initiated with the exporter shipping goods to a buyer. The seller or exporter supplies their bank with the shipping (and other relevant) documentation, which then forwards the documents to the importer or buyer’s bank.

As stipulated above, the documents are typically accompanied by instructions regarding the collection of payment from the buyer.

With this procedure, the bank can only avail the documents to the buyer once the payment has been made and finalized. After payment completion, the buyer’s bank (also known as the collecting bank) transfers the funds to the bank of the exporter, who then transmits the funds to the exporter/seller.

​D/A.....

​In such a procedure, an exporter or seller provides a credit arrangement to the buyer. The extension of credit is done through a time draft, which means that the documents related to the sale of goods are availed to the buyer or importer once he or she has accepted and signed the time draft.

The time draft – a bill of exchange that allows for a buyer to make payment at a later stage – legally binds the buyer to make the payment on a specified date.

When the specified date is reached, the collecting bank reaches out to the buyer for payment. Once the payment has been made, the buyer’s bank – also known as the collecting bank – transfers the funds to the bank of the exporter, who then transmits the funds to the exporter/seller.

​When to Use Documentary Collections

​Documentary collections do not provide sellers or exporters many options in case buyers or importers are unable to meet payment obligations. That’s why it is important for documentary collections to be used under certain conditions.

The conditions that make documentary collections ideal include the presence of a long-standing and well-established relationship between the seller and the buyer, a time when the country of the buyer is economically and politically sound, and in cases when a letter of credit is not acceptable to the buyer.