DOCUMENTARY-COLLECTION-SPEC

Documentary Collection URC 522 D/P + D/A trade finance.

Definition

Documentary Collection types: (1) Clean Collection: only financial documents (drafts/bills of exchange) without commercial documents, less common today. (2) Documentary Collection: commercial documents (invoice + B/L + packing list + insurance) +/- financial documents (sight draft or time draft). Types of Documentary Collection: (a) D/P (Documents against Payment, Sight): importer pays immediately at sight of documents to receive title to goods (B/L), strongest exporter protection in DC (no bank guarantee but importer can't take goods without paying), (b) D/A (Documents against Acceptance, Time): importer accepts time draft (e.g., 60 days sight), receives documents + title to goods, exporter relies importer's promise to pay at draft maturity (weaker protection, importer default risk). Process: (1) Exporter ships goods + obtains B/L 'to order of remitting bank' or 'to order'. (2) Exporter prepares draft (financial document) + commercial documents, deposits with remitting bank with collection instructions (Lodgement Form). (3) Remitting bank forwards documents to collecting bank in importer's country with detailed instructions (release D/P or D/A, charges, interest, who pays etc.). (4) Collecting bank notifies importer of arrival, presents documents per instructions, releases per D/P (against payment) or D/A (against acceptance of draft). (5) If D/P: collecting bank remits funds to remitting bank, exporter paid. (6) If D/A: exporter holds drawee's accepted draft (negotiable), can discount/sell + at draft maturity collecting bank pays. URC 522 governs bank obligations (act in good faith, exercise reasonable care, follow instructions, not responsible for genuineness/validity of documents). Cheaper than L/C (~0.1% vs ~1% L/C fees) but riskier for exporter (no bank guarantee). Commonly used long-standing trading relationships established trust.

Origin

URC 522 published 1995 by ICC ; predecessor URC 322 (1978) ; widely used international trade ~10% trade finance volume vs ~30% L/C + ~60% Open Account.

Example in context

German exporter ships machinery to Brazilian importer USD 100K via D/P 60 days: German exporter ships goods + obtains B/L + invoice + packing list + Certificate of Origin ; deposits with Commerzbank Frankfurt (remitting bank) ; Commerzbank sends documents + draft to Banco do Brasil (collecting bank Sao Paulo) ; Banco do Brasil presents to importer ; importer pays USD 100K + retrieves documents + clears customs ; Banco do Brasil remits to Commerzbank ; exporter paid.

Related terms

• URC 522 — governing rules.
• Letter of Credit spec — stronger guarantee alternative.