Documentary collection
Encyclopedia
A documentary collection is a process, in which the seller instructs his bank
to forward document
s related to the export
of goods to the buyer
's bank with a request to present these documents to the buyer for payment
, 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
, 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 issued by the seller and payable at a certain date in the future (maturity date) ("Documents against Acceptance").
Documentary Collections facilitate import
/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
the buyer's account and make payment only if authorised by the buyer.
Possibilities and advantages:
Make international trade
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 economical 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.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
to forward document
Document
The term document has multiple meanings in ordinary language and in scholarship. WordNet 3.1. lists four meanings :* document, written document, papers...
s related to the export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
of goods to the buyer
Buyer
When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "buyer" or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization...
's bank with a request to present these documents to the buyer for payment
Payment
A payment is the transfer of wealth from one party to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation....
, 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
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
, if the buyer has the shipping documents (original bill of lading
Bill of lading
A bill of lading is a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified...
, certificate of origin
Certificate of origin
A Certificate of Origin is a document used in international trade. It traditionally states from what country the shipped goods originate, but "originate" in a CO does not mean the country the goods are shipped from, but the country where the goodtion problem in cases where less than 100% of the...
, 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) ("Documents against Acceptance").
Documentary Collections facilitate import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
/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
Debit
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
the buyer's account and make payment only if authorised by the buyer.
Possibilities and advantages:
Make international trade
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
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 economical situation in the buyer's country is stable,
if there are no foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
restrictions in the seller's country;
Documentary collection is convenient for the buyer because:
there is no need for an advance payment
Advance payment
An advance payment, or simply an advance, is the part of a contractually due sum that is paid in advance for goods or services, while the balance included in the invoice will only follow the delivery. It is called a prepaid expense in accrual accounting.-See also:*Advance against royalties*Pay or...
; 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.