Documentary Collection
Documentary collection is a payment method in international trade where the exporter submits shipping documents through a bank to the importer, requiring the importer to pay the invoice or accept a bill of exchange before receiving the documents needed to take possession of the goods.
Definition: Documentary collection is a payment method in international trade where the exporter submits shipping documents to the importer through a bank, requiring the importer to pay the invoice or accept a bill of exchange before obtaining these documents and thus the goods. Common synonyms include 'collection' or 'D/P (Documents against Payment)'.
Origin: The origin of documentary collection can be traced back to the late 19th and early 20th centuries. With the rapid development of international trade, there was a need for a payment method that could protect the interests of exporters while ensuring that importers paid for goods before receiving them. The introduction of banks as intermediaries made documentary collection a reliable payment method.
Categories and Characteristics: Documentary collection mainly has two types: Documents against Payment (D/P) and Documents against Acceptance (D/A).
- Documents against Payment (D/P): The importer must pay the invoice before obtaining the shipping documents. This method is more favorable to the exporter as the payment is received before the goods are delivered.
- Documents against Acceptance (D/A): The importer can obtain the shipping documents after accepting a bill of exchange, but the actual payment may be made at a future agreed date. This method is more favorable to the importer as they can receive the goods before making the payment.
Specific Cases:
- Case 1: A Chinese exporter sells a batch of electronic products to an American importer, and they agree to use the D/P method. After shipping the goods, the exporter submits the shipping documents through a bank. The American importer pays the invoice, and the bank hands over the documents to the importer, who then uses them to collect the goods.
- Case 2: A German exporter sells a batch of machinery to an Indian importer, and they agree to use the D/A method. After shipping the goods, the exporter submits the shipping documents through a bank. The Indian importer accepts the bill of exchange, and the bank hands over the documents to the importer, who then uses them to collect the goods and pays the invoice when the bill is due.
Common Questions:
- Question 1: What is the difference between documentary collection and a letter of credit?
Answer: In documentary collection, the bank acts as an intermediary but does not assume payment responsibility; whereas in a letter of credit, the bank promises to pay upon meeting certain conditions, thus reducing risk. - Question 2: What are the main risks of documentary collection?
Answer: The main risk is that the importer may refuse to pay or accept, leading to the exporter not being able to recover the payment.
