Documentary Collection

A documentary collection is the collection of an amount from a buyer through a bank against documents.

Modes of documentary collection:

• Documents against payment (D/P) – the collecting bank is permitted to release the documents only against payment in definite currency;
• Documents against acceptance (of bills of exchange) (D/A) – the collecting bank is allowed to release documents only against the buyer’s acceptance of the bill of exchange payable in a future date.

The advantages the documentary collection gives to the buyer/importer:

• opportunity to choose whether to pay or not;
• payment will be made against the documents that confirm the dispatch of goods instead of advance payment;
• opportunity to obtain deferred payment (if documents are to be released against acceptance of bill of exchange);
• the fees and commissions for the services of the banks are less compared to letters of credit.

The advantages the documentary collection gives to the seller/exporter:

• the buyer must pay or accept a bill of exchange to have the documents released;
• optimisation of cash flows and hence improved liquidity;
• the fees and commissions for the services of the banks are less compared to letters of credit.