Documentary collection is a type of payment, which gives preference to importer. This type of payment is not recommended for operations with new business partners.It is substantially cheaper in comparison with documentary letter of credit and in case of international trade financing is mostly used given there is long-standing relationship between the partners.
Stages of Documentary Collection:
1. Trade partners sign an agreement on the purchase of certain goods and services, where a documentary collection is stated as a means of payment;
2. A seller /principal sends goods to a buyer (drawee);
3. A seller/principal presents the documentation to its bank;
4. A seller’s/principal/s bank sends the documentations together with the letter of collection to a buyer’s/drawee’s bank;
5. A buyer’s/drawee’s bank notifies a buyer/drawee on the provisions of the documentation;
6. If a buyer/drawee accepts the provisions of a documentary payment, it accepts the documentations and performs a payment in the form indicated in the letter of collection;
7. A buyer/drawee receives goods in return to the documentation.
Service fees, in case there is collection order versus bill of exchange and payment liability, are to be agreed individually.
