Documentary Collections

Documentary collection is a method of effecting payment whereby the collecting bank (acting as the seller’s agent) undertakes to collect payment from the buyer against the presentation of commercial documents and then transfer the money to the customer.

The seller ships goods to the buyer and presents a documentary collection which comprises a set of commercial and /or title documents to its bank (collecting bank). The seller’s bank forwards commercial and/or title documents together with the accompanying collection letter (collection order) to the buyer’s bank. The buyer’s bank hands over shipping and title documents (required for taking delivery of the shipment) to the buyer against payment (D/P) or acceptance (D/A).

The seller can feel completely safe using this payments mechanism because title documents will be released to the buyer only upon receipt of payment.

Unlike in documentary credits, the banks involved in a documentary collection are not obligated to verify compliance with the terms and conditions of the transaction. Hence, they cannot eliminate the risk of non-payment. However, the method provides ease, simplicity, and cost effectiveness.