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Documentary collections

A documentary collection is a trade transaction whereby the exporter trusts the collection of payment from the exporter’s bank i.e. remitting bank, which is responsible for sending documents to the importer’s bank i.e. collecting bank, along with the specific instructions for payment.

Payment is received from the importer and the importer's bank and is further remitted to the exporter through the banks involved in exchange for the required documents. In documentary collection there is involvement of a bill of exchange or we can say draft which requires the importer to pay the funds either at sight or on a specified date as described within the terms of documentary collection. There is an affiliated collection cover letter for the documentary collection that gives instructions and specifies the documents required by the importer for the acceptance of the goods and for customs clearance at its port. D/Cs offers no verification process as the banks are only responsible for the transfer of documents from exporter’s bank to importer’s bank; they just act as an agent or facilitator.

Key points

  • Documentary collections are less complicated than any other mode of payment.
  • Under this type of transaction, the importer is not obligated for paying exporter before the shipment of goods.
  • When structured properly, the exporter has control over the consignment until the importer either pays the draft amount at sight or on the specified later date.
  • Involvement of bank assistance for obtaining payment.
  • The process is simple and fast, as only the documents have to be remitted from exporter’s bank to the importer one.

Types of certificate of origin

Two types of certificate of origin can be issued by the chamber:

  • 1) Preferential certificates of origin: This certifies that products are subject to concession, reduced tariffs or exemptions when they are exported to overseas countries extending these privileges.
  • 2) Non-preferential certificates of origin: This certifies that the product’s country of origin does not qualify for any subject to reduced tariffs or preferential treatment. These are the main type which the chamber issues and are also known as ordinary or generic certificates of origin.

Documentary transaction flow:

  • 01
    The exporter ships consignment to the importer and receives the relevant documents in exchange.
  • 02
    The exporter presents these documents as per the instructions for obtaining payment to his bank.
  • 03
    The exporter’s bank then sends the documents to the importer’s bank.
  • 04
    The collecting bank or importer’s bank then releases the documents to the importer on receipt of the related payment or over the acceptance of the draft.
  • 05
    The importer uses the obtained documents for obtaining the consignment and to get customs clearance.
  • 06
    Once the payment is received by the collecting bank, it further forwards the proceeds to the exporter’s bank.
  • 07
    Then the payment is credited in the exporter’s account.

When to involve documentary collections:

With documentary collections the exporters have just a little recourse against the importer especially in case of non-payment. Thus, these should be used only under the following circumstances:

  • The seller and buyer have a well-established relationship, must be trustworthy enough.
  • The exporter is confident enough about the importing country that it is politically as well as economically stable.
  • When an open account sale is too risky for the target country and an LC is unacceptable by the importer.

Want more information about documentary collections? or looking for any other export import services? Talk to our global trade experts now.

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