Documentary Collections Explained

Documentary Collections Explained#

Documentary collections (D/P and D/A): your bank sends shipping documents to the buyer's bank, which releases documents only when the buyer pays (D/P: documents against payment) or accepts a time draft (D/A: documents against acceptance). Cost: $100-300 vs $2,000-10,000 for an LC. Less secure than LC (bank has no payment obligation) but more secure than open account.

D/P vs D/A Decision Framework#

D/P (documents against payment): buyer pays immediately to get documents and claim goods. Lower risk — you don't release documents until payment is confirmed. Use when: moderate trust, buyer needs goods urgently. D/A (documents against acceptance): buyer accepts a time draft (promise to pay in 30-90 days) to get documents. Higher risk — you've released documents on a promise. Use when: established relationship, buyer has strong credit.

When Collections Go Wrong#

If a buyer refuses to pay (D/P) or dishonors a draft (D/A), your goods are stuck at the destination port. Options: find another buyer in-country, return goods to origin (expensive), abandon goods (last resort). Prevention: research buyer before shipping, use trade credit insurance as backup, and never ship high-value or perishable goods on D/A terms to unknown buyers.

• Documentary collections are cheaper than LCs but offer less security — understand when they're the right choice