• What is a Documentary Collection?
• Parties in a Documentary Collection
• Step-by-Step Process for the Importer
• Advantages and Disadvantages of a Documentary Collection to the Importer

What is a Documentary Collection?

A Documentary Collection is a method of payment used in international trade whereby the Exporter entrusts the handling of commercial and often financial documents to banks and gives the banks instructions concerning the release of these documents to the Importer. The two most common conditions for release are:

1. Documents Against Payment (D/P): Documents may be released only if the Importer makes immediate payment according to the contracted agreement between the Exporter and the Importer. Also known as a sight Collection.
   
2. Documents Against Acceptance (D/A): Documents may be released only if the Importer accepts the accompanying draft, thereby incurring an obligation to pay at a specified future date. Also known as a term Collection.

Parties in a Documentary Collection

Collecting Bank: Any bank, other than the Remitting Bank, involved in obtaining payment or acceptance from the Importer (drawee).

Drawee: The party, also known as the buyer or Importer, who is presented with documents (financial or commercial) for the purpose of either payment or acceptance, in accordance with the Collection instructions.

Drawer: The party, also known as the seller or Exporter, who authorizes a bank (the Remitting Bank) to handle documents on its behalf.

Presenting Bank: The Collecting Bank making presentation to the Importer (drawee), usually the Importer's bank.

Remitting Bank: The bank that the Exporter authorizes to carry out the Collection on its behalf.

Step-by-Step Process for the Importer

The following is an explanation of the process you, as an Importer, follow when acting as the Drawee under a Documentary Collection. This explanation assumes that TD is both the Collecting Bank and your bank, the Importer's Bank.

1. Establish a sales contract with the seller where you both agree that payment will be made by Documentary Collection.

2. As soon as TD receives the documents from the Remitting Bank, you will be notified.

3. On being presented with the documents, examine them carefully to see that they correspond to the terms and conditions of the sales contract. Note: As the Importer, you do not have the right to inspect the goods or to have samples withdrawn from the cargo prior to taking delivery of the documents.

4. Assuming you find the documents in order, you authorize payment in exchange for the documents in the case of a sight Collection; and, in the case of a term Collection, you must indicate your acceptance by signing the face of the draft in exchange for the documents.

If the terms and conditions of the Collection do not correspond to the sales contract, indicate to your TD branch representative that you are unwilling to pay the sight Collection or accept the term Collection, and state your reasons. TD will convey your refusal to the Exporter via the Remitting Bank and await instructions. In the meantime, you are encouraged to try to resolve the problem directly with the Exporter. Assuming an agreement is reached and instructions from the Remitting Bank have been received, TD will amend the terms and conditions of the Collection to reflect the new arrangement.

You now possess the documents relevant to the shipment as outlined in your sales contract.

If you choose not to pay, be warned that you may face legal action or protest by the exporter.

* Protest: If you refuse to pay a sight draft, accept a term draft or pay an accepted draft, the Exporter has the option to protest. Protesting entails contacting a notary public or lawyer for the purpose of legally presenting a draft to the Importer. The effect of protest in countries where protest laws apply is to enable the Exporter to maintain the right of recourse against you and to preclude you from evading responsibilities by claiming lack of notification regarding non-acceptance or non-payment. Even if the Exporter is unsuccessful in claiming payment through legal action, your reputation on the international market may suffer.

Advantages and Disadvantages of a Documentary Collection to the Importer

Advantages:

• Ability to examine documents before paying or accepting a draft.
• Unlike a Letter of Credit, a line of credit is not required and fees are minimal.
• Under a term Collection, you obtain goods and deferred payment.

Disadvantages:

• Under a sight Collection, you must pay when taking possession of documents.