Documentary collection for international trade

Your needs

Entering new markets and getting to know new trading partners is your ideal scenario for doing business abroad. However, you also want to build in some certainty. When exporting, you want to be paid correctly and on time. For imports, you need timely and accurate deliveries.

The documentary collection can help you achieve this in your international trade activities.

Characteristics

In a documentary collection, the exporter sends the agreed documents and terms of collection to the importer’s bank via their own bank. These documents will include an invoice, customs or insurance papers, transport documents, and various types of certificates.

The importer’s bank only hands over these documents once the importer has agreed to their contents and to pay the exporter for the transaction. Once they have the documents, the importer can take possession of the goods.

The bank's involvement ensures the proper exchange of documents and payment in line with the agreed collection terms between the exporter and the importer. However, the bank does not guarantee the conformity or quality of the goods within this international payment arrangement.

Payment conditions

There are two types of documentary collection:

• Payment at sight, also known as Documents Against Payment or Cash Against Documents. With this option, the exporter retains control of the goods, even if they are already abroad. If the importer does not pay, they will not receive the documents needed to take possession of the goods.
• Payment with a bill of exchange, also known as Documents Against Acceptance. In this case, the importer must first accept a bill of exchange before receiving the required documents. However, this option carries a risk, which we explain below.

Risks

No matter how hard the involved banks try, there are risks linked to using a documentary collection as an international payment method.

• The exporter or importer may fail to fulfil their obligations.
• The importer may refuse the documents. This can be particularly problematic if you have already shipped the goods.
• Under Documents Against Acceptance, the importer may refuse to pay the bill of exchange even though they already have the documents, and possibly even the goods. A bank guarantee ('aval') provided by the importer's bank can prevent this. In this case, the bank assumes the importer's obligation to pay.

Advantages and disadvantages

A documentary collection offers several clear advantages:

• The entire process follows international rules. All parties involved must comply with these rules, which are monitored by the banks.
• It is a simple international payment technique with limited administrative burden and low costs.

However, there are also disadvantages to a documentary collection:

• It is less suitable if the exporter and importer do not know each other or have not yet established a trusting relationship.
• It offers reasonable protection if your counterparty’s country is politically and economically stable. If that is not the case, it is better to consider another solution.

At BNP Paribas Fortis, we understand that entrepreneurs have many questions when considering foreign trade and choosing the right international payment method. Are you planning to import or export, looking to expand your existing international activities, or searching for new opportunities abroad? If so, contact your relationship manager. They will be happy to put you in touch with a specialist.