Detailed explanation of documentary collection: the difference and risk analysis between D/A and D/A

Documents against Payment (D/P) is a collection method that requires the importer to obtain shipping documents only after paying off the payment. This method is safer for the exporter because even if the importer defaults and fails to pay, the exporter can still control the goods. Depending on the time of payment, the D.P. is divided into two types: D.P. at sight and D.P. against long-term payment.

D.P. at sight

Document against Payment at Sight (D/P at Sight) means that the exporter issues a sight draft together with the shipping documents after delivering the goods, and presents it to the importer through the bank. The importer pays immediately after seeing the check, and then obtains the shipping documents from the bank.

D.P. Usance

Documents against Payment after Sight, D/P after sight, means that the exporter issues a usance draft together with the shipping documents after shipping the goods, and presents it to the importer through the bank. The importer will accept the bill of exchange after verifying that it is correct, and then receive the shipping documents after paying off the bill on the due date. If the payment date is later than the arrival date, the importer can pay in advance or borrow the goods with a trust receipt in order to resell the goods in a timely manner.

D&A

In contrast, Document against Acceptance (D/A) is another collection method, which allows the importer to obtain the shipping documents from the bank and take delivery of the goods after accepting the bill, but it must be Payment is due on the due date of the bill of exchange. This method provides the importer with time for capital turnover, but if the importer fails to fulfill its payment obligations, the exporter will face a greater risk of loss.

The difference between D/A and D/A

Although D/A and D/A both involve the acceptance of usance bills, the essential difference between them lies in the time point at which the documents are delivered. Under D/A, the importer must wait until the bill of exchange matures and is paid in full before he can get the documents; while in D/A, the importer only needs to accept the bill to get the documents immediately. Therefore, from the exporter’s point of view, the security of D/A is higher than that of D/A.

Differences in international practice

It is worth noting that banks in different regions handle these two collection methods differently. Banks in Western European countries usually do not accept Usance Documents against Payment and tend to convert them into Documents against Acceptance. When Bank of America receives a request for an usance document against payment, it will notify the collecting bank that such transaction will be automatically converted into a document against acceptance. Banks in the Middle East sometimes confuse the two. These differences increase the exporter’s risks when using forward payment to deliver documents.

In summary, choosing an appropriate collection method is crucial to ensuring transaction security. Exporters should consider the importer’s creditworthiness and the operating practices of the destination bank when deciding which method to use.