Documentary Collection
A Documentary Collection is a method of payment in international trade in which the exporter's bank sends the shipping documents to the importer's bank, which releases them to the importer only against payment or a promise to pay. The banks act as intermediaries handling the documents — but, unlike a letter of credit, they do not guarantee payment. It is governed by the ICC's Uniform Rules for Collections (URC 522).
There are two main types: Documents against Payment (D/P) — the buyer must pay to receive the documents (and thus the goods); and Documents against Acceptance (D/A) — the buyer accepts a bill of exchange (a promise to pay at a future date) to receive the documents, effectively getting credit. Documentary collection is cheaper and simpler than a letter of credit but riskier for the exporter (no bank guarantee), sitting between the extremes of cash-in-advance and open account. It suits established trading relationships with reasonable trust, and understanding D/P versus D/A is key to choosing the right, appropriately-secured payment method.
Documentary collection is the middle ground of trade payment — cheaper and simpler than a letter of credit, safer than open account, using the banks to hold documents until the buyer pays or accepts. Knowing D/P from D/A, and where collection sits on the risk spectrum, is essential to picking a payment method that fits the trust in the relationship.
What is the difference between D/P and D/A?
Documents against Payment releases documents only when the buyer pays; Documents against Acceptance releases them when the buyer accepts a bill of exchange to pay later.
How does documentary collection differ from a letter of credit?
The banks handle documents but do not guarantee payment, making it cheaper but riskier for the exporter than an LC.