Documentary Collection in Trade Finance

What is the primary purpose of a documentary collection?

Which type of documentary collection requires payment after goods have been delivered?

What is a limitation of banks in a documentary collection process?

What initiates the documentary collection process?

What is the role of the exporter's bank in a documentary collection?

Which of the following correctly describes Documents Against Acceptance Collection?

Who assists in availing documents to importers and exporters in the documentary collection?

In a documentary collection, what does the importer's bank do upon receiving the documents?

Documentary Collection: Meaning

Documentary collection is a trade finance method where an exporter gets paid by an importer after exchanging documents through banks.
Merchant Credit and Guarantee Corporation Limited (MCG) facilitates this by assisting exporters and importers with document handling.
This is a trade financing system.
It typically occurs after the goods are shipped to the importer's location.

Documentary Collection Types

Documents Against Payment: Importer pays the bank when they receive the documents. This is the most common method, reducing risk to the exporter.
Documents Against Acceptance: Importer is expected to pay on a specific date after receiving documents/shipping. The exporter is given a credit agreement.

Documentary Collection Process

Agreement and Documents: Purchaser and seller agree on payment amount. Shipping details are included in the documents.
Shipping and Order: Exporter ships goods, providing the buyer with bank instructions about the collection.
Bank Transfer: Exporter's bank sends documents to buyer's bank.
Presentation Document: Buyer receives the documents from their bank, and now owes the amount to the designated bank.
Payment/Approval: Buyer's bank pays the exporter's bank; the amount (or approval of payment) is sent to the exporter.

Bank Role in Documentary Collection

Banks facilitate the exchange of documents but don't guarantee payment.
They handle the process and transfer funds.

This quiz covers the concept of documentary collection, a vital trade finance method involving document exchanges between exporters and importers via banks. It includes details on the types of collection, such as Documents Against Payment and Documents Against Acceptance, along with the overall process. Test your knowledge on this fundamental aspect of international trade.