DOCUMENTARY COLLECTION

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Documentary collection is a method of payment used in international trade in which a bank intervenes in the transaction to guarantee the fulfilment of payment and document delivery obligations between the exporter and the importer.

In the case of payment on demand, the exporter sends the documents to the importer's bank for presentation and collection of payment. Once payment is received, the bank releases the documents to the importer so that he can take possession of the goods. This method is favourable to the exporter as it maintains control of the documents until payment is made, thus reducing the risk of non-payment.

In the case of sight acceptance of the bill of exchange, the collecting bank delivers the documents to the importer once it has accepted the bill of exchange, i.e. it has assumed the obligation to pay on a certain date. This method represents less risk than direct payment in advance, as the bank acts as an intermediary and guarantees the acceptance and payment of the bill of exchange.

However, it is important to bear in mind that the intervention of banks in documentary collection does not constitute an absolute guarantee for the fulfilment of the contractual obligations between the parties, so it is important to carefully assess the risks and benefits before choosing this method of payment.

Advantages and disadvantages of documentary collection for the exporter

The main advantages and disadvantages of documentary collection for the exporter are detailed below:

ADVANTAGES

• Greater security and control in the management of the payment by the exporter, as the bank acts as an intermediary and is responsible for verifying and validating the documents before delivering them to the buyer.
• Greater protection against the risk of non-payment or non-performance by the buyer, as the bank only delivers the documents when payment or acceptance of the bill of exchange has taken place.
• Possibility to finance the operation by discounting the bill of exchange at the bank, which allows the exporter to dispose of the funds before the established maturity date.
• Greater confidence in the commercial relationship with the buyer, by demonstrating that the exporter has a system of control and rigorous follow-up in the collection of its sales.

DISADVANTAGES

• Increased complexity in the management and processing of documents, which can increase the costs and timescales of the operation.
• Increased risk of rejection or discrepancy in the documents submitted, which may delay or even prevent collection of the sale.
• Possibility that the buyer may prefer other, more flexible and less restrictive payment methods, which may limit the exporter's business opportunities.
• The possibility that the intermediary bank may not exercise due diligence in the verification and validation of documents, which may jeopardise the safety and security of the exporter.

Payment on demand (Document against Payment):

In this case, the collecting bank presents the documents to the buyer, who makes payment and obtains the documents for delivery of the goods. This method is favourable to the exporter since, indirectly, it maintains control of the documents until the external buyer makes payment.

Acceptance at sight of the bill of exchange (Documents against Acceptance):

In this case, the collecting bank delivers the documents to the buyer upon acceptance of the bill of exchange, i.e. its obligation to make payment on a fixed date.

It represents less risk than direct payment and prepayment because it involves one or more banks, but does not constitute a guarantee for the fulfilment of the obligations arising from the contract of sale agreed between the parties.