What is documentary collection in letter of credit?
A Documentary Collection is the process through which the exporter’s bank requests payment from the importer’s bank by sending documents detailing the transaction amount and list of items. Issuing Authority. The importer’s bank is the issuing authority for the Letter of Credit.
What is an import collection?
An import collection is a method of payment used in import trade. Accordingly, a foreign seller sends the commercial documents to his own bank which collects the payment from the buyer, i.e. your company through your bank after delivery.
What are the types of documentary collections?
There are two types of Documentary collections: Documents against Payment Collection (D/P): The importer receives the delivery documents only against payment. Documents against Acceptance Collection (D/A):
What is a downside of documentary collection?
Disadvantages. 1. The role of the bank is limited and they do not guarantee payment. 2. Seller does not get the benefit of a bank guarantee of the payment provided by documentary credit.
What is the purpose of documentary collection?
Documentary collection is a procedure that allows a seller to give their bank instructions to forward trade-related documents to the bank of a buyer. It allows for the enablement and easing of import and export processes.
What are documentary credits?
Documentary credits are a payment method that ensures that the exporter receives payment immediately after the goods have been sent. • Documentary credits can also be used as a financing method, and the terms of the individual documentary credit may stipulate that the importer be granted a credit.
What is the difference between clean collection and documentary collection?
Documentary collection – is an arrangement when goods are shipped to the buyer and necessary documents (financial or transport) are transfered to the seller’s bank with instructions of getting payment in the buyer’s bank. Using clean collection seller provides only draft without transport documents.
Who is drawee in documentary collection?
The individual or firm on whom a draft is drawn. The drawee is instructed by the drawer to pay a specified sum of money to, or to the order of the payee, or to the bearer. In a documentary collection, the drawee is generally the buyer.
Do Banks undertake any payment obligations under documentary collection?
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.
When should a documentary collection be used?
Documentary collections should be used only under the following conditions: The exporter and importer have a well-established relationship. The exporter is confident that the importing country is politically and economically stable. An open account sale is considered too risky.
How does a documentary collection work for an exporter?
With a documentary collection, exporters allow their bank to act as a collection agent for payment of shipped goods to the buyer. Documents against payment (D/P) requires the importer to pay the face amount of the draft at sight.
What to do with import documentary collection from OCBC?
Rely on OCBC as a trusted intermediary to handle your documents. Ensure goods have been shipped before making payment. Ensure goods have been shipped before making payment. Convert your import documentary collection into trust receipt for your working capital needs.
What is the definition of a documentary collection?
What is a ‘Documentary Collection’. A documentary collection is a trade transaction in which the exporter hands over the task of collecting payment for goods supplied to his or her bank, which sends the shipping documents to the importer’s bank together with payment instructions.
Can a bank guarantee payment for a documentary collection?
With documentary collections, banks serve as channels for the documentation, but they do not guarantee payments, as is common with letters of credit. A bank can only debit the account of a buyer with the buyer’s authorization.