Documentary Collection

Reviewed by Bhavana | Updated on Aug 27, 2020

Meaning of Documentary Collection

Documentary collection is a procedure by which the exporter's bank receives funds from the importer 's bank in exchange for documentation documenting the shipped goods. It is a trade transaction in which exporters authorize their bank to serve as a collection agent for the payment of goods shipped to the purchaser.

## Let Us Understand Documentary Collection In Detail

The document collection (D / C) is so-called since the exporter collects payment from the importer in return for the shipping documents, with the funds and documents channeled into their respective banks.

Shipping documents are the documents needed for the purchaser to clear the customs and deliver the goods. Delivery documents shall include a business invoice, a certificate of origin, an insurance certificate and a packing list. A main document in documentary collections is a bill of trade or a bill of draft, which is a formal application for payment from the exporter to the importer.

## Documentary Collection Types

  • Documents Against Acceptance (D/A) need an importer to pay on a specific date in the future. A D/A requires the seller or importer to take a pledge to pay, which is known as a time draft. Once the purchaser acknowledges the time draft and the promise to pay, the bank shall release the documents to the purchaser.

  • Documents Against Payment(D/P) need an importer to pay the draft's face amount at sight. In other words, a payment has to be made to the bank before a purchaser's bank or collecting bank issues the documents. A D/P is often referred to as Cash Against Documents or Sight Draft .

    Process of Documentary Collection

    The D/C process includes an exporter (or a seller), an importer (or a buyer), the remitting bank (or a seller's bank) and a collection bank (or a buyer's bank).