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 tracking the shipped goods. It is a trade transaction in which exporters authorise their bank to serve as a collection agent for the payment of goods shipped to the purchaser.
## Understanding 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 channelled 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. The main document in documentary collections is a bill of trade or a bill of the 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 promises 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).