Documentary Collection occurs when a seller instructs his bank to forward documents related to the exporting of goods or services to the buyer’s bank, then requesting to present these documents to the buyer for their payment. The contract will also include the conditions under which conditions the documents can release to the buyer.
The bank, acting as an intermediary between exporter and importer, presents documents on behalf of the exporter – which are proof of the actual delivery of a product or service rendered, and in exchange collect payment or receives an acceptance of a bill of exchange.
A documentary collection is a procedure by which an exporter’s bank collects funds from the importer’s bank, by exchanging documents related to the exports of products. The foreign bank which is the presenting bank provides shipping and title documents to the importer in exchange for a cash payment (documents against payment) or a firm commitment to pay on a particular date (documents against acceptance).
Types of Documentary Collections
Documentary collections are two types that depend on when the payment is made to the exporter.
- Document against payment (DP) – it is also called Sight Documents.
- Document against acceptance (DA) – Term Documents