Documentary Collections

The advantage of the documentary collection system to the importer is that he does not have to make payment for the goods until he accepts the documents to them from his own bank. The documents will have been sent by the seller via his own bank to the importers bank. However if the importer does not collect the documents he may be faced with penalties.

The importers bank receives al the shipping documents and the invoices which state the methods of payment. The bank will notify the importer when it has all the documents. The importer will then pay a sight or accept a term bill of exchange for payment. Provided this method of payment Is accepter by his bank, the importer will receive the shipping documents which enable him to obtain the goods. There are various terms used for immediate payment in addition to payment at sight, these include cash against documents, documents against payment and for term bills documents against acceptance. A term bill is one that allows credit ie 30, 60 or 120 days or even longer from date of invoice of bill of landing before payment is made by the importers bank from the importers account.
A bill of exchange is passed by the exporter’s bank to the importer’s bank at the time the goods are despatched. A bill of landing, air way-bill or similar document must be included with these documents as evidence as despatch. The exporter should arrange with his freight forwarder or with you where the goods will be held awaiting release for when you present the shipping documents. The documents will show the goods are being delivered to a specific place, eg a customs warehouse, to await release. Problems arise where goods are being shipped very quickly by air or road since the goods may arrive before the shipping documents, and the exporter may have to make special arrangements for your bank to have the documents before the goods arrive. Errors and delays in documentary payment arrangements can be a disadvantage, as well as costly, to all parties involved in the transactions. However, increasingly the electronic transfer of documents is being used to increase speed and efficiency. The simpler Trade Procedures Board (Sitpro) and the Electronic Commerce Association (ECA) are able to give advice and recommendations on electronic systems and their use and acceptability in overseas countries.