Documentary Collection

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Perry's Dictionary of Banking defines a "collection as the receipt, transmission and presentation of a bill, draft, cheque or other instruments by a collecting banker for a customer and the subsequent direction of the resulting funds into the customer's account.

Under this arrangement, the seller ships the goods to the buyer, engages the services of his bank to collect the proceeds from the said buyer. There are two methods of collection viz the clean collection and the documentary collection.

In a clean collection, the seller ships the goods directly to the buyer. At the same time, the shipping documents are also dispatched directly to the buyer, to enable him to take delivery of the goods. The seller then draws a bill of exchange on the buyer requesting his bank to present the bill of exchange to the buyer for payment.

In documentary collection, the seller ships the goods to the buyer and at the same time, he draws a bill of exchange on the buyer. The seller then hands the bill of exchange together with the shipping documents to his bank to present it to the buyer.

The documents may be delivered to the buyer either against payment (known as Document Against Payment - D/P) or against the acceptance of the bill of exchange and subsequent payment at a fixed determined future date (known as Document Against Acceptance - D/A).

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