What Is Documentary Collections and How It Works

What Is Documentary Collections and How It Works

Documentary Collections Explained

Documentary Collections are a bank-to-bank way to hand over shipping documents only when the buyer pays or promises to pay. No bank promise to pay. Banks handle papers and instructions, not performance. If you want a middle ground between open account and a Letter of Credit, this is it.

Outcome: seller keeps control of title documents until the buyer pays at sight or accepts a time draft, using banks to transmit and release documents under clear rules.

What It Is

Definition
A seller ships goods, sends documents to their bank with instructions, and the buyer gets those documents from their bank once payment conditions are met. Governed in practice by URC 522.
Two main flavors
D/P Documents against Payment, also called Cash Against Documents. D/A Documents against Acceptance, where the buyer accepts a time draft and pays at maturity.

Who Does What

Party Role
Seller (Exporter) Ships goods, draws a draft if D/A, prepares document set, instructs remitting bank.
Remitting Bank Sends documents and instructions to the collecting bank. No payment guarantee.
Collecting/Presenting Bank Presents documents to buyer, collects funds or acceptance, releases documents per instructions.
Buyer (Importer) Pays at sight for D/P or accepts the draft for D/A to obtain documents and take delivery.

How It Works Step by Step

Step What Happens Notes
1. Contract Buyer and seller agree D/P or D/A, documents, and who pays bank charges. Keep document list lean and realistic.
2. Ship Seller ships goods and obtains transport documents and any inspection or insurance required. Title usually sits with original B/L until release.
3. Lodge with bank Seller submits documents and collection instruction to the remitting bank. Quote URC 522 in your instruction.
4. Present to buyer Collecting bank presents to buyer for payment (D/P) or acceptance (D/A). Buyer examines documents commercially, not the bank.
5. Release documents On payment or on acceptance, bank releases the documents to the buyer. Buyer uses B/L to take delivery from carrier.
6. Settlement Funds remitted to the seller for D/P, or collected at maturity for D/A. For D/A the buyer must honor the draft at due date.

D/P vs D/A Compared

Item D/P Documents against Payment D/A Documents against Acceptance
Release trigger Buyer pays sight to get documents Buyer accepts time draft to get documents
Seller risk Lower, since title stays until payment Higher, buyer gets goods before paying
Buyer cash impact Pays on arrival or presentation Gets credit until maturity
Funding options for seller Post-shipment loan against documents or expected proceeds Discount or forfait the accepted draft if avalised or with strong buyer

Where The Risk Sits and How To Cut It

Bank does not guarantee payment
Collections are documentary handling only. If buyer refuses, bank will not pay. If you need a promise, use a confirmed LC or ask for an aval on the draft.
Country and FX risk
Buyer may be willing but blocked by capital controls or FX. Hedge and consider confirmation or insurance on larger exposures.
Dishonor at maturity
For D/A, reduce tenor, require bank aval on the bill of exchange, or insure buyer risk. Never rely on hope at maturity.
Logistics and storage costs
If buyer refuses D/P, goods sit at port. Plan for storage, re consign, or resale options in the sales contract.

Typical Document Set

Document Purpose
Commercial Invoice Value and description matching the contract.
Packing List Marks, weights, and counts for clearance.
Transport Document Original B/L or airway bill controls title and delivery.
Certificate of Origin Tariff and compliance at import.
Inspection or Quality Cert If agreed in contract for acceptance.
Bill of Exchange (Draft) Only for D/A. Buyer accepts to commit to pay at maturity.

When Documentary Collections Make Sense

Moderate risk counterparties
You trust the buyer enough to ship, but want document control to stop free delivery.
Ports where B/L control works
Buyers cannot clear cargo without the original B/L or release. Good leverage for D/P.
Lower fee tolerance
Cheaper than a confirmed LC, faster to set up than a full LC program.
Short logistics windows
Where a clean D/P can settle around arrival without long banking cycles.

Fees And Who Pays

Charge Typical Payer Comment
Collection handling Seller or buyer per contract Remitting and collecting bank each charge.
Acceptance commission (D/A) Buyer If the bank avalises, extra fee applies.
Courier, SWIFT, storage Usually buyer Agree in contract to avoid arguments.

How To Finance Under Collections

Seller side
D/P with post-shipment loan against collection documents. D/A with discounting if the draft is avalised by the buyer’s bank. Trade credit insurance plus receivables finance once acceptance is recorded.
Buyer side
Import loan or trust receipt to fund D/P at arrival. For D/A, match tenor to your cash cycle and hedge FX upfront.

Do This, Not That

Do Avoid
Spell out D/P or D/A in the contract with who pays bank charges. Vague payment terms like CAD without detail on timing and charges.
Keep document list short and standard. Exotic certificates that your corridor cannot issue on time.
For D/A, seek a bank aval on the draft. Long tenors with weak buyers and no guarantees.
Plan a fallback if buyer refuses D/P. Shipping without resell or storage options at destination.

How We Make Collections Work In Real Life

Clean instruction pack
URC 522 based instructions for your remitting bank. Clear release conditions and fee splits that stop delays.
Funding route
Post-shipment loans for D/P. Avalised draft discounting or insurance-backed receivables finance for D/A.
Risk add-ons
Bank aval, standby for payment, or credit insurance layered to suit the buyer and corridor.
Logistics plan
B/L routing and release options that keep leverage if the buyer stalls.

Set Up Documentary Collections That Actually Close

Send your sales contract, corridor, and document list. We will return a bank instruction pack, a funding route for D/P or D/A, and a timeline that matches your vessel and clearance dates.

Start the Process

This page is informational. Banks handling documentary collections do not guarantee payment. Any funding or risk cover is subject to independent approval, KYC and AML checks, and executed documentation. Terms vary by buyer quality, corridor, and market conditions.

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