Documentary collection (vesaik mukabili ödeme) is a payment method in which the exporter, after loading the goods, sends the shipping documents through its own bank to the buyer's bank. The buyer receives the documents only by paying the amount (D/P) or by accepting a time draft (D/A). Banks do not guarantee payment; they only act on instructions, and the ICC's URC 522 rules apply.
How does documentary collection work?
In this method, known in international banking as "documentary collection" or "cash against documents (CAD)", banks handle documents, not money. The seller keeps control of the goods through the documents and releases them only against payment or acceptance.
- In the sales contract or the proforma invoice, the parties set the payment method, the required documents and the payment term.
- The exporter loads the goods and prepares the commercial invoice, packing list, transport document, certificate of origin and, if required, the insurance document.
- It hands the documents to its own bank (the remitting bank) together with a collection instruction.
- The remitting bank sends the documents to a bank in the buyer's country (the presenting bank).
- The presenting bank calls the buyer; the buyer pays or accepts the draft and receives the documents.
- With the documents, the buyer collects the goods from the carrier and clears them through customs; the amount is transferred to the exporter's account.
What is the difference between D/P and D/A?
| Type | Documents released against | Exporter's risk |
|---|---|---|
| Documents against payment (D/P, sight collection) | Payment of the amount | If the buyer does not take up the documents, the goods are left unclaimed on arrival |
| Documents against acceptance (D/A, usance collection) | Acceptance of a time draft (e.g. 60 or 90 days) | The buyer receives the goods but may not pay at maturity |
| Avalised acceptance | Draft acceptance plus an aval by the buyer's bank | Low, because there is a bank guarantee |
What does URC 522 govern?
The ICC Uniform Rules for Collections (Publication No. 522), in their 1995 revision, have applied since 1 January 1996. The rules are binding when the collection instruction expressly refers to them. The basic principles are:
- Banks act according to the instruction; they do not guarantee payment.
- Banks check that the documents appear to correspond to those listed in the instruction; they are not obliged to examine their content further.
- Goods should not be dispatched directly to a bank or consigned to its order without the bank's prior consent.
- In the event of non-payment or non-acceptance, steps such as protest and protection of the goods are taken only if they are written in the instruction.
For electronic presentation of documents, the eURC 1.1 supplement published in 2023 can be used.
What are the risks?
For the exporter, the biggest risk is that the buyer does not take up the documents while demurrage and storage charges accrue at the port of discharge. Bringing the goods back or selling them to another buyer takes time. The method's protection rests on the transport document representing the goods. In sea freight, a bill of lading made out to order performs this function. In road freight, however, the CMR is not a document of title; the carrier may deliver the goods to the consignee named in the CMR. For this reason, selling on documentary collection terms in truck shipments offers weak protection, since the buyer can collect the goods without taking up the documents. For the buyer, the risk is that the goods turn out not to conform to the contract even though the documents look fine; payment is made without seeing the goods.
How it differs from a letter of credit and cash against goods
| Criterion | Cash against goods | Documentary collection | Letter of credit |
|---|---|---|---|
| Bank undertaking | None | None (except aval) | The issuing bank undertakes to pay |
| Document examination | None | Appearance and list only | Compliance examination (UCP 600) |
| Cost | Lowest | Medium | Highest |
A seller who wants bank security turns to a letter of credit; a seller who knows the buyer and wants to avoid costs turns to cash against goods; documentary collection sits between the two. How the payment method is reflected in the contract and shipping documents is a matter for foreign trade regulation consultancy.