Documentary Collection Process, Documents against Payment; Documents Against Acceptance

Documentary collection is the collection by a bank of funds due from a buyer against the delivery of documents. The bank acts as an agent for the seller.  The bank presents documents to the buyer (the importer) through that party's bank.  In exchange, the seller's bank receives payment of the amount owed, or receives a time draft which is a promise of payment at a future date.

Sellers may present the documents to their own bank and request it to make presentation to the buyer's bank. In either case, the exporter still enjoys the protection of URC 522. Before the collection, the parties involved should negotiate and agree to terms governing the release of the documents, either:

• D/P (documents against payment) or 
• D/A (documents against acceptance When a drawee acknowledges in writing on the face of the draft that the buyer will pay the draft at maturity.).

Here is an outline of the process used by creditors to obtain payment using the Documents against Payments process: 

• The seller (principal) ships goods to the port or airport of the buyer (drawee) and obtains shipping documents.
• The seller presents shipping documents to the buyer's bank (presenting bank or collecting bank), authorizing it to release the documents against payment of the draft. Note: Without prior approval, bills of lading must not be consigned to the buyer's bank as this might entail expenses or obligations that could be incurred in the event of non-payment by the buyer. 
• The Collection Form is then filled out completely. The documents and original form are delivered directly to the collecting/presenting bank with only copies of the form being sent to the seller's bank for recording and monitoring the collection. 
• The buyer's bank receives the collection form and accompanying documents, records the collection for monitoring purposes and sends a notice to the buyer, giving them collection details and instructions. 
• Upon receipt of the collection notice, the buyer must decide whether to accept or reject the collection terms. If the terms are not acceptable by the buyer, notice should be communicated promptly. If the collection terms are acceptable, the buyer remits payment to the presenting bank. 
• Upon receipt of payment from the buyer, collection records are adjusted to reflect payment and instructions for payment to the seller's bank. 
• Release of documents to the buyer is initiated. 
• Funds are transferred to the seller's bank (remitting bank) by S.W.I.F.T., wire transfer or air mail, as instructed. 
• The seller's bank receives the payment, notifies the seller and credits the seller's account. 

Note: Documents against Acceptance (D/A) employs an additional step in which documents are released and goods received due to an acceptance or promise to pay in the future. The collection is still in force and monitored as an extra action until final payment is received.

Edited by Michael C. Dennis.  Mr. Dennis is a business consultant and the author of several books including "Credit and Collection Handbook. " Please email questions or comments to him at mcdennis13@yahoo.com