used in international commerce whereby the exporter entrusts their bank (the remitting bank) to forward shipping and title documents to the importer’s bank (the collecting bank), with instructions to release the documents to the importer upon payment (Documents Against Payment – D/P) or upon acceptance of a time draft (Documents Against Acceptance – D/A).
This arrangement facilitates the exchange of goods and payment without requiring the exporter to extend full credit or the importer to pay in advance. The banks act as intermediaries, handling the documents but not guaranteeing payment.
Documentary Collections are typically used when there is an established level of trust between trading partners, and where the political and economic environment of the buyer’s country is relatively stable.