Documentary Collection

What is Documentary Collection?
With Documentary Collection, the exporter ships the goods and presents documents to his or her bank specifying that the documents should be released to the importer only upon payment, or acceptance of a time draft promising payment at a later date. The exporter's bank will send the documents to the importer's bank in order to collect payment.

Know Your Customer
Unlike a Letter of Credit, Documentary Collections provide no guarantee of payment or substitution of credit risk by the importer's bank. Therefore it is very important to know your customer. A Documentary Collection is most commonly used in low-risk countries with importers who possess a good to excellent credit rating. It may also be used in countries where foreign exchange restrictions do not allow open account purchases or sales.

Advantages and Disadvantages
The primary advantages of Documentary Collection are:

• The currency being transferred
• Simplicity, there are no documentary compliance rules
• Low cost - Because the bank does not provide credit or guarantees, this method of payment is much less expensive than a Letter of Credit

The greatest potential disadvantage with Documentary Collection is that the exporter assumes the credit risk of the importer and the importer's country. The exporter also assumes the risk of refused shipments. These risks highlight the importance of using Documentary Collection primarily with established customers with good credit standing.

If you have any questions, please feel free to contact the International Banking Department at 1-800-230-5506 (Mon-Fri 8:30am - 5:00pm CST).

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