what is documentary collection 
documentary collection is a form of trade finance in which an exporter is paid for its goods by an importer after the two parties banks exchange the required documents the exporter s bank collects funds from the importer s bank in exchange for documents releasing title to the shipped merchandise usually after the goods arrive at the importer s location 1understanding documentary collectiondocumentary collection is so called because the exporter receives payment from the importer in exchange for the shipping documents shipping documents are required for the buyer to clear the goods through customs and take delivery 1 they include a commercial invoice certificate of origin insurance certificate and packing list a key document in a documentary collection is the bill of exchange or draft which is a formal demand for payment from the exporter to importer 1documentary collection is less common than other forms of trade finance such as letters of credit and advance payment it is less expensive than some methods but also somewhat riskier so is generally limited to transactions between parties who have developed trust or are located in countries with strong legal systems and contract enforcement 1a sight draft reduces the exporter s risk because the buyer s bank will not release the documents without payment from the buyer but neither side s bank assumes any financial responsibility in a documentary collection transaction 2two types of documentary collectiondocumentary collections falls into two basic categories depending on when the payment is made to the exporter steps in export and documentary collectionbelow is the step by step process other considerations the risks of documentary collectionsthe exporter s risk is higher with a time draft versus a sight draft as the buyer s bank would have released the documents with the buyer s acceptance of the time draft meaning the buyer could already have possession of the merchandise by the time payment is due the seller s risk is limited with a sight draft this is because the buyer s bank would not release the documents needed to take possession of the goods before payment is made at worst the seller would have to find another buyer or pay to have the goods shipped back 