A documentary collection is a process in which a

seller Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. The seller, or the provider of the goods or services, completes a sale in r ...

instructs their

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

to forward

document A document is a written, drawn, presented, or memorialized representation of thought, often the manifestation of non-fictional, as well as fictional, content. The word originates from the Latin ''Documentum'', which denotes a "teaching" o ...

s related to the

export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...

of goods to a

buyer Procurement is the method of discovering and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agency buys goods or serv ...

's bank with a request to present these documents to the buyer for

payment A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...

, indicating when and on what conditions these documents can be released to the buyer. The buyer may obtain possession of goods and clear them through customs, if the buyer has the shipping documents (original

bill of lading A bill of lading () (sometimes abbreviated as B/L or BOL) is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill of lading may toda ...

certificate of origin A Certificate of Origin or Declaration of Origin (often abbreviated to C/O, CO or DOO) is a document widely used in international trade transactions which attests that the product listed therein has met certain criteria to be considered as origina ...

, etc.). The documents, however, are only released to the buyer after payment has been made ("Documents against Payment") or payment undertaking has been given - the buyer has accepted a bill of exchange issued by the seller and payable at a certain date in the future (

maturity date Maturity or immaturity may refer to: * Adulthood or age of majority * Maturity model ** Capability Maturity Model, in software engineering, a model representing the degree of formality and optimization of processes in an organization * Developmen ...

) ("Documents against Acceptance"). Documentary Collections facilitate import/export operations. They do not provide the same level of security as

Letters of Credit A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exp ...

, but, as a result, the costs are lower. Unlike the Letters of Credit, for a Documentary Collection, the bank acts as a channel for the documents but does not issue any payment covenants (does not guarantee payment). The bank that has received a documentary collection may

debit Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a credit ...

the buyer's account and make payment only if authorised by the buyer.

Possibilities and advantages

Make

international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...

operations more flexible, Use Documentary Collection in cases when the seller does not want to deliver goods to the buyer on "open account" basis, but due to a long-term stable business relationship between the parties there is no need for security provided by a Letter of Credit or payment guarantee, Documentary collection is suitable to the seller: if the seller has no doubts about the buyer's ability to meet its payment obligations, if the political and economic situation in the buyer's country is stable, if there are no

foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...

restrictions in the seller's country; Documentary collection is convenient for the buyer because: there is no need for an

advance payment An advance payment, or simply an advance, is the part of a contractually due sum that is paid or received in advance for goods or services, while the balance included in the invoice will only follow the delivery. Advance payments are recorded as a ...

; payment for goods can be made when shipping documents have been received, in cases of documents released against acceptance the buyer has the possibility to sell the goods first and afterwards make payment to the seller. Documentary Collection assures the seller that the shipping documents will be released to the buyer only upon payment or acceptance of a Bill of Exchange.

References

Banking terms {{econ-stub