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Documentary Collection Payment Method in International Trade - Pros And Cons


There are many ways to pay and get paid in international trade. Some types of payment are more beneficial for the buyer rather the seller or opposite.


Which one is the best for your business?


One of the top 5 most used internationally payment methods is the Documentary Collection Payment Method.


If you haven't seen our post about the Advance Payment method, you can find it here. Also, the Open Payment method is described in more detail here.


DOCUMENTARY COLLECTION PAYMENT 📄


Documentary collection is an international trade procedure in which a bank in the buyer’s country acts on behalf of a seller for collecting payment for a shipment.


Under this form of payment, the exporter, after shipping the goods out, submits the documents to his bank along with the Documentary Collections (also: bills of exchange) and hands over the responsibility of payment collection to his bank. The exporter’s bank then sends the bill along with the documents to its correspon­dent bank in the importer’s country and presents the bill before the importer either for payment or for acceptance as per terms of the bill. The documents along with the bill are a full set of Bill of Lading, Invoice and a Marine Insurance Policy.


Collections are subject to the Uniform Rules for collections published by the International Chamber of Commerce under the document number URC 522. However, the banks involved do not provide any guarantee of payment.


DAP - Documents against Payment 💰➡📄


In this method, the documents are delivered to the importer only after collecting payment of goods by the importer’s bank. The exporter presents the shipping and collection documents to the bank which sends them to the buyer’s bank in the buyer’s country.

Payment is received from the buyer to the seller through the banks involved in the collection in exchange for those documents.


DAA - Documents against Acceptance 📄➡✔️ 📄➡💰


In this method of payment, the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks all the necessary instructions concerning the release of these documents to the Importer.

In this case, the documents are sent to the importer through the banker, the banker presents the bill to the importer for acceptance and if he accepts the bill, the bank will deliver the documents of title to the buyer (importer) so that he may take possession of goods. On the due date, the bank will again present the bill to the buyer for payment and if payment is received, the collecting banker sends the amount to the exporter through normal banking channels to be credited to his account.

Source 1, Source 2, Source 3


Pros and Cons of Documentary Collections

Source

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