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What Is a Documentary Collection?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 02 September 2016
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A documentary collection is a process by which importers and exporters make payments easier. To start the process, exporters go to a bank in their country and present collection documents that represent shipping and other exporting costs. After the documents reach a bank where the importers live, the importers pay their bank and it returns the money to the first bank, which pays the exporters. During this process, the banks are only responsible for sending the documents and collecting the money. If importers fail or refuse to pay on a documentary collection, then the banks can sue on behalf of the exporters, if asked, though the banks also may deny this request.

Money usually is not transferred between importers and exporters until the items have shipped or arrived. One way of performing this payment when the time comes is through documentary collection. Exporters visit a local bank and present a certificate of origin, bill of lading and other documents dealing with shipping and exporting costs. This bank then forwards the documents to a bank local to the importers.

After the documents are forwarded, the importers visit their local bank and pay the bank for shipping fees. The bank often also has title documents, which importers need to legally own the imported items. When the importers pay the shipping costs, the bank forwards the money to the exporters’ bank.

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With some credit documents used between importers and exporters, the banks involved make guarantees that parties will pay. When a documentary collection is used, the banks make no such guarantee. This lack of a guarantee makes it less likely that they will lose money, so this document is typically cheaper than other credit documents, leading to its common usage between trusted parties. At the same time, using this form of payment between parties that are new to one another may be a bad idea, because the lack of a guarantee could lead the exporter to lose money.

While the banks make no guarantee about receiving payment, they can sue importers for refusing to pay the documentary collection. Importers may refuse to pay because they do not want to use their money, or because they do not want to accept the imported items; regardless of the cause, the banks can sue them for not paying. This is only done on behalf of the exporters, which have to initiate this process. The banks will not sue unless exporters ask them to, and even then some banks may refuse this request.

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