Documentary collections are used to facilitate in trading of goods between parties and collection of sale proceeds or acceptance arising thereof both locally and internationally. Collections are less secure than LC since they do not bear commitment of a bank to pay/accept. Collections are used by parties with an established relationship e.g. between Subsidiaries.
- Collection is for any amount as there is no undertaking from the bank.
- The maximum life of the collection should not exceed 180 days.
- No securities required unless avalisation facility enjoyed.
- Competitive commission charged.
- Cheaper than LCs in terms of lower bank charges and with no impact on Customer’s credit lines
- Easy to establish, operate and& shorter processing time- speedy payments
- If documents are against acceptance (DA), allows an importer a period of credit and at the same time assuring exporter of payments
- Drawee has the flexibility on settlement of bills (esp. for docs against acceptance)