Documentary Collections (DCs)
What are Documentary Collections?
Documentary collections differ from a Letter of Credit (read our blog post on the differences between DCs and LCs).
In the case of a documentary collection, the exporter will request payment by presenting its shipping and collection documents to their remitting bank. The remitting bank then forwards these documents on to the bank of the importer. The importers bank will then pay the exporters bank, which will credit those funds to the exporter.
The role of banks in a documentary collection is limited, they do not verify the documents, take risks, nor do they guarantee payment; banks just control the flow of the documents.
With documentary collections, the bank does not cover credit and country risk, however, they are more convenient and more cost-effective than Letters of Credit and can be useful if the exporter and importer have a good relationship, and if the importer is situated in a politically and economically stable market.
Bonds, Guarantees and Letters of Credit
Structured Terms of Payment
Currency Exposure and Risk Management
Shariah Compliant Finance
Benefits of Documentary Collections
- Less complicated and easier to set up than Letters of Credit
- Higher warrantee of payment to the exporter
- Often cheaper to set up than its equivalents such as an LC
- Exporters remain title of goods (only with sea shipments under negotiable bill of lading)