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. A period during which goods are sold for a reduced price may also be referred ...

instructs their

bank A bank is a financial institution that accepts Deposit account, 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 m ...

to forward

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

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 a ...

of goods to a

buyer Procurement is the process of locating 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. The term may also refer to a contractual o ...

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

payment A payment is the tender of something of value, such as money or its equivalent, 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 or philanthropy desir ...

, 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 Customs is an authority or Government agency, agency in a country responsible for collecting tariffs and for controlling International trade, the flow of goods, including animals, transports, personal effects, and hazardous items, into and out ...

, 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 common carrier, carrier (or their Law of agency, agent) to acknowledge receipt of cargo for shipment. Although the term is historically related only to Contract of ...

, certificate of origin, 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 A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...

issued by the seller and payable at a certain date in the future ( maturity date) ("Documents against Acceptance"). Documentary Collections facilitate

import An importer is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. Import is part of the International Trade which involves buying and receivin ...

/export operations. They do not provide the same level of security as Letters of Credit, 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 cred ...

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 significan ...

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