What is Documentary Collection?

Documentary collection is the collection by a bank of funds due
from a buyer against the delivery of documents.  The bank,
acting as agent for the seller (exporter), presents documents to
the buyer (importer) through that party's bank and in exchange
receives payment of the amount owed, or obtains acceptance
of a time draft for payment at a future date.

The liability of the bank under a documentary collection is
primarily restricted to following the seller's instructions in
forwarding and releasing documents against payment or

How is Documentary Collection different from an L/C or
Open Account?

Unlike a letter of credit, the bank does not assume any liability
to pay if the buyer does not want or is unable to pay. Compared
to open account sales, the documentary collection offers more
security to the seller, but less than a letter of credit.

When should a Documentary Collection be used?

Numerous criteria are applied by businesses when determining
which payment instrument to offer as a term of sale. However,
in general, a documentary collection would be appropriate

1)  The seller and the buyer know each other to be reliable.

2)  There is no doubt about the buyer's willingness or ability to

3)  The political and economic conditions of the buyer's country
are stable.

4)  The importer's country does not have restrictive foreign
exchange controls.

What are the advantages of a Documentary Collection?

1)  Simple and inexpensive handling compared to letters of

2)  Often faster receipt of payment than open account terms.

3)  Seller retains title to the goods until payment or acceptance
is made.

What are the disadvantages of Documentary Collection?

If the buyer refuses or is unable to pay, the seller has three
options, which could be expensive:

1)  Find another buyer.

2)  Pay for return transportation

3)  Abandon the merchandise.

Who are the parties involved?

1)  PRINCIPAL - exporter, seller, remitter, drawer of the draft.

2)  REMITTING BANK - exporter's bank handling the collection

3)  PRESENTING OR COLLECTING BANK - usually the buyer's

4)  DRAWEE - importer, buyer, payee.

What types of Documentary Collections are there?

1)  Documents against Payment (D/P) also known as "Sight
Draft" or "Cash against Documents” (CAD).  The buyer must
pay before the collecting bank releases the title documents.

2)  Documents against Acceptance (D/A). The buyer accepts a
time draft, promising to pay for the goods at a future date. After
acceptance, the title documents are released to the buyer.

What if shipment by air freight?

An Air Waybill (AWB) is a straight consignment; it is not
negotiable.  The buyer does not need the AWB to
pick up the goods. In other words, the buyer can obtain the
merchandise without paying for it.  To avoid this possibility,
when shipping by air, t
he AWB should always be consigned to
the buyer's bank
.  This prevents release of the merchandise
until such time as the buyer's bank issues an Air Release to the
carrier.  This is done only after the buyer has made payment or
accepted the draft.

What are the steps in documentary collection?

1)  The buyer (importer) and seller (exporter) agree on the
terms of sale, shipping dates, etc., and that payment will be
made on a documentary collection basis.

2)  The exporter, through a freight forwarder, arranges for the
delivery of goods to the port/airport of departure.

3)  The forwarder delivers the goods to the point of departure
and prepares the necessary documentation based on
instructions received from the exporter.

4)  Export documents and instructions are delivered to the
exporter's bank by either the exporter or the freight forwarder.

5)  Following the instructions of the exporter, the bank
processes the documents and forwards them to the buyer's

6)  The buyer's bank, on receipt of documents, contacts the
buyer and requests payment or acceptance of the trade draft.

7)  After payment or acceptance of the draft, documents are
released to the buyer, who utilizes them to pick up the

8)  The buyer's bank remits funds to the seller's bank or
advises that the draft has been accepted.

9)  On receipt of good funds, seller's bank credits the account
of the exporter.

What is the URC 522?

URC 522 stands for The Uniform Rules for Collections, 1995
Revision, International Chamber of Commerce Publication No.
522, the rules that banks apply to the handling of collections.

Any company importing or exporting on a documentary
collection basis should be familiar with the URC 522, as it has a
direct impact on how the collection is handled and what
procedures the banks follow.

The URC 522 may be ordered from:

1212 Avenue of the Americas
New York, NY  10036

Phone:  212-703-5066
Fax:  212-944-0012

Documentary Collection