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Documentary Collections

The documentary collections procedure allows the exporter to retain control over the documents of title to the goods – which of course the importer needs to take delivery of the goods. This system provides a higher degree of security to the exporter than open account trading, but not as much security as a

documentary letter of credit. Once the exporter has dispatched the goods as agreed, he sends the documents to prove this fact to his bank, known as the remitting bank. The remitting bank then forwards the documents to the importers bank, known as the collecting bank. The remitting bank instructs the collecting bank to only release the documents (which the importer needs to take possession of the goods) against the importer’s payment, or acceptance of his obligation to pay, for the goods.

This system provides some protection to both parties. The banks act as intermediaries. Traders should be aware though that the banks do not verify the documents, nor do they have any responsibilities beyond ensuring that the necessary documents have been presented. There is still the possibility that the importer will refuse to pay or accept the documents when presented. Equally, the importer must still commit to paying for the goods before they have actually taken possession of them and had the chance to inspect them.

Documentary collections are appropriate for stable and lower risk markets, in situations where there is some trading history between the two parties, but where the exporter is not willing to trade on open account.

The International Chamber of Commerce (ICC)

has published a set of rules about documentary collections. These are known as the Uniform Rules for Collections (URC).

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