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Understanding advantages of a documentary collection, a payment method in international trade











You need to understand all aspects of documentary collection payment method in order to be benefited from its advantages. Please have a look at my previous articles about documentary collections to improve your knowledge. Here are the topics so far covered under my website regarding the documentary collections.


Advantages of a documentary collection for exporters and importers

Advantages of a documentary collection can be examined by tow ways. Advantages to exporters and advantages to importers. Figure 1 belows shows the advantages of a documentary collection both exporters and importers.

Figure 1 : Advantages of a documentary collection for exporters and importers


















Advantages of a documentary collection for exporters :

  1. Documentary collections give considerable payment warranty to exporters. Banks play a limited role on documentary collection transactions. Their primary role is not to surrender documents to importers unless payment or payment assurance is initiated by importers. It should be beneficial to stress that payment security of documentary collections are less than letters of credit as bank's have very limited obligations on D/Cs.
  2. Documentary collections are less complicated than its alternatives such as letters of credit.
  3. Documentary collections are less expensive than its alternatives such as letters of credit.
  4. Exporters remain title of goods (only with sea shipments under negotiable b/l).

Advantages of a documentary collection for importers :

  1. Documentary collections are less expensive than its alternatives such as letters of credit.
  2. Documentary collections are less complicated than its alternatives such as letters of credit. 
  3. Under documentary collections importers make sure that they will pay to their suppliers after shipment of goods.
  4. Importer may be able to review copy of shipment documents before payment. I am referring copy of the shipment documents not the original ones.
  5. Importers can pay  with a "deferred payment" option with the help of an usance bill of exchange (usance draft) under a documentary collection.
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What are the advantages of a documentary collection?
Documentary collection (D/C) is a payment method in international trade. We have learned that documentary collection is also known as Cash Against Documents (CAD) by most exporters and importers. I would like to explain advantages of a documentary collection payment method in foreign trade transactions.



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