Documentary Collections

Hi friends. Today, I would like to throw light on Documentary Collections. There are several means by which cash transactions may happen between an exporter and an importer of goods and services. Documentary collection is one such way wherein the exporter entrusts the payment collection to the remitting bank, which is the exporter’s bank. The exporter’s bank sends related documents along with the instructions of payments to the collecting bank, which is the importer’s bank. Documentary collections make use of a draft that requires the importer to pay the face amount either on sight or on a specified date in the future. The draft lists out all the documents that are required for the transfer of title to the goods. The only disadvantage of this process is that documentary collections offer no verification process, and in the event of non-payment, there is only limited recourse. On the other hand, the advantage is that, in comparison with letters of credit, drafts are cheaper.