Document Collection

Document Collection

Documentary collection is a type of trade financing in which an exporter receives payment for its goods from an importer after the banks of the two parties exchange the relevant documentation. After the items arrive at the importer's location, the exporter's bank collects payments from the importer's bank in exchange for paperwork releasing title to the transported merchandise.

Documentary Collections: An Overview

The exporter receives cash from the importer in exchange for the shipping paperwork, thus the term "documentary collection." The customer will need shipping paperwork to clear the goods through customs and take delivery. A commercial invoice, a certificate of origin, an insurance certificate, and a packing list are all included.

The bill of exchange or draught, which is a formal demand for payment from the exporter to the importer, is an important document in a documentation collection.

Documentary collection is less widespread than other types of trade finance like letters of credit and advance payments.

Two types of Documentary Collections

Depending on when the payment is made to the exporter, documentary collections are divided into two categories:

1. The importer must pay the face amount of the draught at sight when dealing with documents against payment. In other words, when the buyer receives the draught and before any shipping documents are released, the payment must be sent to the bank. Because of the lower risk to the vendor, this is the most typical method of documentary gathering.
2. Documents opposing acceptance impose a payment deadline on the importer. The bank releases the documents to the purchase once the buyer approves the time draught.

Export and Documentary Collection Procedures

The procedure is outlined below:

1. When the buyer and seller agree on the payment amount, shipment information, and that the transaction will be a documentary collection, the sale is complete. The exporter next transports the items to the port or location from which they will be exported, which is normally done through a freight forwarder.
2. The exporter's bank, also known as the remitting bank, prepares the documentation and sends them to the remitting bank. The paperwork are subsequently forwarded by the exporter's bank to the collecting bank, which is the bank of the importer.
3. The paperwork are received by the importer's or buyer's bank, which notifies the buyer that the documents have been received. In exchange for the paperwork, the buyer's bank seeks payment from the buyer.

4. The bank releases the documents to the buyer once the buyer's bank has been paid or the buyer has approved the time draught. The paperwork are used by the buyer to collect the goods.