Documentary Collection: Definition, Types, and How It Works

What is documentary collection?

Documentary collection is a trade finance method in which an exporter’s bank forwards shipping and title documents to the importer’s bank and collects payment (or acceptance of a draft) before the importer obtains those documents. The documents—such as a commercial invoice, bill of lading, certificate of origin, insurance certificate, and packing list—are necessary for the buyer to clear goods through customs and take delivery.

Key points

• It is a lower-cost, lower-security alternative to a letter of credit; banks facilitate document exchange but do not guarantee payment.
• Used when buyer and seller have some level of trust or when legal enforcement is reliable.
• Two main forms: documents against payment (sight draft) and documents against acceptance (time draft).

Types of documentary collection

• Documents against payment (D/P, sight draft): The importer must pay the draft at sight to receive shipping documents. This reduces the exporter’s payment risk because documents are only released on payment.
• Documents against acceptance (D/A, time draft): The importer accepts a time draft promising payment by a specified future date. Once accepted, the documents are released and the buyer can take possession before payment is made, increasing exporter risk.

Documents involved

Typical documents exchanged include:
* Commercial invoice
* Bill of lading (or airway bill)
* Bill of exchange (draft)
* Certificate of origin
* Insurance certificate
* Packing list

How the process works

1. Buyer and seller agree on terms and that the sale will use documentary collection. Goods are shipped.
2. Exporter prepares required documents and lodges them with its bank (the remitting bank).
3. Remitting bank forwards documents to the importer’s bank (the collecting bank) with instructions (D/P or D/A).
4. Collecting bank notifies the importer and requests payment (or acceptance) in exchange for the documents.
5. Upon payment or acceptance, the collecting bank releases documents to the importer so the goods can be claimed.

Risks and considerations

• Banks act only as intermediaries and do not assume payment obligations—exporters bear credit and political risk.
• Sight drafts (D/P) minimize exporter risk because documents aren’t released until payment.
• Time drafts (D/A) expose exporters to greater risk since the importer may obtain goods before payment is due.
• Documentary collection is less protective than letters of credit but less costly; suitable for established trading relationships or low-risk jurisdictions.

When to use documentary collection

Consider documentary collection when you want a balance between cost and risk mitigation—cheaper than letters of credit but offering more control than open-account terms. It is most appropriate for transactions where parties trust each other or operate under enforceable legal frameworks.