A documentary collection is a payment method in international trade where banks handle the exchange of documents, but do not guarantee payment. The seller (exporter) instructs their bank (the remitting bank) to forward shipping and title documents to the buyer’s bank (the collecting bank), which only releases them once the buyer meets the agreed payment terms.
There are two standard structures:
- Documents Against Payment (D/P): The buyer must pay immediately to receive the documents.
- Documents Against Acceptance (D/A): The buyer accepts a bill of exchange, committing to pay at a later date.
This method is less secure than a letter of credit but more protective than open account trade. It is often used when there is an existing relationship or a level of trust between trading partners, and it can be more cost-effective than more formalised instruments.
Documentary collections can also be executed digitally.