A documentary collection is a payment mechanism that allows the Seller to maintain control over the shipping documents until such time as the Buyer either pays for them or accepts a draft promising to pay for them at a future date ("trade acceptance"). The rules governing documentary collections are described in the Uniform Rules for Collections (UCP 522) issued by the International Chamber of Commerce ("ICC").
Advantages for the Buyer:
- Less costly than letters of credit
- No bank commitment to pay, therefore doesn't utilize credit line with bank.
Advantages for the Seller:
- Control of the shipping documents thru Bank intermediaries
Unlike a letter of credit, a documentary collection does not provide a bank's promise to pay. The banks involved in this service simply act as agents to facilitate the payment process.