i am making a school project
i want yo know student's view about documentary collection which contains cheques, pay in slips , vouchers and bill of exchange
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A documentary collection (D/C) is so-called because the exporter receives payment from the importer in exchange for the shipping documents, with the funds and documents channeled through their respective banks. Shipping documents, just to be clear, are documents required for the buyer to clear customs and take delivery of goods—commercial invoice, certificate of origin, insurance certificate, packing list, etc. While D/Cs are less complicated and cheaper than letters of credit, they are riskier for exporters because they do not have a verification process and offer limited recourse if the importer does not pay. They are therefore only recommended in situations where the exporter and importer have a long-standing trade relationship.
Key Documents in Documentary Collection
A key document in documentary collections is the bill of exchange or draft, which is a formal demand for payment from the exporter to importer. D/Cs can be classified into two types, depending on when payment is sought by the exporter: 1) documents against payment (D/P), which requires the importer to pay the face amount of the draft at sight, or 2) documents against acceptance (D/A), which requires the importer to pay on a specified future date.
How Documentary Collection Works
In a D/P collection, the exporter ships the goods and then gives the shipping documents to his or her bank (which is also known as the remitting bank). The bank forwards these documents to the importer’s bank (known as the collecting bank), which will only release the documents to the importer on receipt of payment for the goods. The collecting bank then remits the funds to the exporter’s bank for payment to the exporter.
A D/A collection differs from a D/P collection because the exporter extends credit to the importer through a time draft in the former case. Once the importer signs the time draft – which becomes a binding obligation to pay by the due date shown on the draft because of the signed acceptance – the documents are released to the importer. The collecting bank contacts the importer on the due date for payment, which upon receipt is remitted to the exporter’s bank for payment to the exporter.
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Key Documents in Documentary Collection
A key document in documentary collections is the bill of exchange or draft, which is a formal demand for payment from the exporter to importer. D/Cs can be classified into two types, depending on when payment is sought by the exporter: 1) documents against payment (D/P), which requires the importer to pay the face amount of the draft at sight, or 2) documents against acceptance (D/A), which requires the importer to pay on a specified future date.
How Documentary Collection Works
In a D/P collection, the exporter ships the goods and then gives the shipping documents to his or her bank (which is also known as the remitting bank). The bank forwards these documents to the importer’s bank (known as the collecting bank), which will only release the documents to the importer on receipt of payment for the goods. The collecting bank then remits the funds to the exporter’s bank for payment to the exporter.
A D/A collection differs from a D/P collection because the exporter extends credit to the importer through a time draft in the former case. Once the importer signs the time draft – which becomes a binding obligation to pay by the due date shown on the draft because of the signed acceptance – the documents are released to the importer. The collecting bank contacts the importer on the due date for payment, which upon receipt is remitted to the exporter’s bank for payment to the exporter.
Read more: Documentary Collection Definition | Investopedia https://www.investopedia.com/terms/d/documentary-collection.asp#ixzz5K0MsVarF
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BhavukGarg:
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i want to write it on only 1 pagr
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yes in documentary collection
A documentary collection is a process in which a seller instructs their bank to forward documents related to the export of goods to a buyer's bank with a request to present these documents to the buyer's for payment, indicating when and on what conditions these documents can be released to the buyer.[1]
The buyer may obtain possession of goods and clear them through customs, if the buyer has the shipping documents (original bill of lading, certificate of origin, etc.). The documents, however, are only released to the buyer after payment has been made ("Documents against Payment") or payment undertaking has been given - the buyer has accepted a bill of exchange issued by the seller and payable at a certain date in the future (maturity date) ("Documents against Acceptance").
Documentary Collections facilitate import/export operations. They do not provide the same level of security as Letters of Credit, but, as a result, the costs are lower. Unlike the Letters of Credit, for a Documentary Collection, the bank acts as a channel for the documents but does not issue any payment covenants (does not guarantee payment). The bank that has received a documentary collection may debit the buyer's account and make payment only if authorised by the buyer.
Possibilities and advantages:
Make international trade operations more flexible, Use Documentary Collection in cases when the seller does not want to deliver goods to the buyer on "open account" basis, but due to a long-term stable business relationship between the parties there is no need for security provided by a Letter of Credit or payment guarantee, Documentary collection is suitable to the seller: if the seller has no doubts about the buyer's ability to meet its payment obligations, if the political and economic situation in the buyer's country is stable, if there are no foreign exchangerestrictions in the seller's country; Documentary collection is convenient for the buyer because: there is no need for an advance payment; payment for goods can be made when shipping documents have been received, in cases of documents released against acceptance the buyer has the possibility to sell the goods first and afterwards make payment to the seller. Documentary Collection assures the seller that the shipping documents will be released to the buyer only upon payment or acceptance of a Bill of Exchange.
A documentary collection is a process in which a seller instructs their bank to forward documents related to the export of goods to a buyer's bank with a request to present these documents to the buyer's for payment, indicating when and on what conditions these documents can be released to the buyer.[1]
The buyer may obtain possession of goods and clear them through customs, if the buyer has the shipping documents (original bill of lading, certificate of origin, etc.). The documents, however, are only released to the buyer after payment has been made ("Documents against Payment") or payment undertaking has been given - the buyer has accepted a bill of exchange issued by the seller and payable at a certain date in the future (maturity date) ("Documents against Acceptance").
Documentary Collections facilitate import/export operations. They do not provide the same level of security as Letters of Credit, but, as a result, the costs are lower. Unlike the Letters of Credit, for a Documentary Collection, the bank acts as a channel for the documents but does not issue any payment covenants (does not guarantee payment). The bank that has received a documentary collection may debit the buyer's account and make payment only if authorised by the buyer.
Possibilities and advantages:
Make international trade operations more flexible, Use Documentary Collection in cases when the seller does not want to deliver goods to the buyer on "open account" basis, but due to a long-term stable business relationship between the parties there is no need for security provided by a Letter of Credit or payment guarantee, Documentary collection is suitable to the seller: if the seller has no doubts about the buyer's ability to meet its payment obligations, if the political and economic situation in the buyer's country is stable, if there are no foreign exchangerestrictions in the seller's country; Documentary collection is convenient for the buyer because: there is no need for an advance payment; payment for goods can be made when shipping documents have been received, in cases of documents released against acceptance the buyer has the possibility to sell the goods first and afterwards make payment to the seller. Documentary Collection assures the seller that the shipping documents will be released to the buyer only upon payment or acceptance of a Bill of Exchange.
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