Documentary collections are an alternative to letters of credit that offer a degree of protection to the importer and exporter. Banks act, as intermediaries to the exchange of title documents for payment, but are not obliged to pay, as is the case under a letter of credit.
The two most common conditions for release of documents are:
- Documents Against Payment (D/P): Documents may be released only if the importer makes immediate payment according to the contracted agreement between the exporter and the importer. Also known as sight collection.
- Documents Against Acceptance (D/a): Documents may be released only if the importer accepts the accompanying draft, thereby incurring an obligation to pay at a specified future date. In this arrangement the exporter is exposed to the credit risk of the importer and the political risk of the country. Also known as a term collection.
- An economical alternative to a letter of credit
- Importer does not require a line of credit with their bank
- Exporter will have control over title documents until the foreign buyer has either made payment or accepted the obligation to make payment
- Exporters/Importers can use HAB Bank Trade to manage their outgoing/incoming collections.