Documentary Collection: an Effective Tool to Expedite Trade Transactions

Trade transactions involve a series of formalities and legal criteria that end up complicating the payment process.

That’s why several payment methods and procedures have been determined to facilitate a smooth undertaking between the exporters and importers. One of such processes is Documentary Collection through which the bank of the exporter becomes liable to receive the payment for the shipped goods from the importer’s bank. The details of the entire trade transaction are recorded in a document that is provided to the importer’s bank in exchange for the goods. The exporter’s bank is authorized by the exporter to serve as a collection agent for the payment. This simplified procedure makes Documentary Collection or D/C a safe, reliable, and quick way to facilitate genial trade transactions.

 

To receive the shipped goods without any hassle, the importer needs shipping documents from the exporter that help in clearing the customs. These delivery documents include a business invoice, a packing list, and a certificate of origin, an insurance certificate, and a bill of trade. The bill of trade, also known as the bill of the draft, serves as a formal application for the payment from the exporter to the importer.

 

The process of Documentary Collection may involve direct payment or the promise of payment from the importer’s bank. Based on this factor, the D/C can be divided into two categories:

  • Document against acceptance, and
  • Document against payment

The meaning of both these processes is clear from their names.

 

Document against Acceptance or D/A defines a specific date on which the importer needs to pay for the shipped goods in the future. It involves a pledge to pay on the part of the importer; it is called a time draft. On the acceptance of the time draft by the importer, the documents are released by the bank. On the other hand, the Document Against Payment or a D/P demands the importer to make the payment even before the bank issues the documents. That’s why it is also known as ‘Cash against Document’ or ‘Sight Draft’.

 

Considering the efficacy of Documentary Collection, it can be easily termed as one of the most efficient processes to ease the payment procedure for even the most complicated trade transactions.


rnrtrade corporation

1 Blog posts

Comments