What is a documentary collection?

Several documents are required to make the payment through a documentary collection.

Document collection is a process by which importers and exporters facilitate payments. To start the process, exporters go to a bank in their country and present billing documents that represent freight and other export costs. After the documents reach the bank where the importers reside, the importers pay the bank and the bank returns the money to the first bank, which pays the exporters. During this process, the banks are only responsible for sending the documents and collecting the money. If importers fail to pay or refuse to pay a documentary collection, banks can sue on behalf of exporters if requested, although banks can also deny such a request.

Money is not generally transferred between importers and exporters until the items are shipped or arrive. One of the ways to make this payment at the right time is through the collection of documents. Exporters visit a local bank and present a certificate of origin, bill of lading, and other documents related to shipping and export costs. This bank then sends the documents to a local bank for the importers.

After sending the documents, the importers visit the local bank and pay the bank for the shipping costs. The bank also often has ownership documents, which importers need to legally own imported items. When the importer pays the freight, the bank transfers the money to the exporter’s bank.

With some credit documents used between importers and exporters, the banks involved give guarantees that the parties will pay. When a documentary collection is used, banks do not offer such a guarantee. This lack of collateral makes them less likely to lose money, which is why this document is often cheaper than other credit documents, leading to its common use among trusted parties. At the same time, using this form of payment between new parties can be a bad idea, as the lack of collateral can cause the exporter to lose money.

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Although banks do not provide any guarantee upon receipt of payment, they can sue importers for refusing to pay the documentary fee. Importers may refuse to pay because they do not want to use their money or because they do not want to accept imported items; Regardless of the cause, banks can sue them for non-payment. This is only done on behalf of the exporters, who must initiate this process. Banks will not process unless exporters request it, and even then some banks may refuse this request.

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