About documentary collections

Difference: Documentary collections and credits

About documentary collections

As an exporter, Documentary Collection offers you far greater security than selling on open account, but not as much as a documentary credit. Credit, political and transfer risks, for instance, are not covered. You should therefore check before starting sales negotiations whether documentary collection is the right method of payment for you as an exporter. Having said that, documentary collection costs less and involves less time and effort for settlement.

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The advantages and disadvantages

The advantages:

Straightforward, less expensive settlement process.
Payment is usually quicker than with open account.
The documents and thus the goods can be released to the importer simultaneously on payment of the amount owed or acceptance of a draft. This applies where the goods are not addressed directly to the importer in the shipping document or the latter cannot redeem them without the shipping documents.
Clear internationally recognized guidelines in the Uniform Rules for Collections (URC), ICC publication no. 522.

The disadvantages:

Payment is not guaranteed as credit, political and transfer risks are not covered.
The payment date is unsure.
If the importer refuses to accept the documents or the draft on the due date, losses can be incurred. It may prove extremely costly or even impossible to find an alternative buyer or have the goods shipped back.

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Key principles

As the exporter exposes himself to a certain risk by producing/shipping the goods or providing another service before receiving payment, we would only recommend documentary collections under following circumstances:

There needs to be a relationship of trust between the exporter and the importeur.
There must be no doubt as to the importer’s willingness and ability to pay.
The importing country must be politically, economically and legally stable.
International payment transactions with the importing country must not be hampered or threatened by currency controls or any other such restrictions.

Please note:

The Bank’s liability is limited to the forwarding and release of documents against payment, acceptance or promise of payment (letter of undertaking) by the importer.

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Legal aspects

The Uniform Rules for Collections (URC) form the basis for the processing of documentary collections. They govern the essential rights and obligations of the parties to the agreement.

Please note:

The current URC 522 guidelines, published by the International Chamber of Commerce, Paris, have been in force since 1 January 1996 and are extremely well established internationally.
- Art. 1-3 General Provisions and Definitions
- Art. 4 Form and Structure of Collections
- Art. 5-8 Form of Presentation
- Art. 9-15 Liabilities and Responsibilities
- Art. 16-19 Payment
- Art. 20-21 Interest, Charges and Expenses
- Art. 22-26 Other Provisions
Alongside the URC 522, local legislation governing documentary collections also remain important.
In Switzerland, the issuance of documentary collection instructions is governed by the relevant provisions of the Swiss Code of Obligations (Art. 394ff. and Art. 466ff. and also articels about securities OR 965ff).The full provisions of URC 522 can be found in the UBS publication «Documentary Credits, Documentary Collections, Bank Guarantees».

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