International trade payments
Documentary Collection: Documents against Payment (D/P)
D/P (documents against payment) is a collection in which the seller ships and then instructs banks to collect, and the buyer's bank releases the documents only when the buyer pays. The seller keeps control of the cargo through the original bill of lading, but the banks do not undertake to pay if the buyer refuses.
- Exporter risk
- Risk level 3/5
- Importer risk
- Risk level 3/5
- Cost
- ●●●○○
- Applicable rules
- D/P collections are governed by the ICC Uniform Rules for Collections, URC 522, when the collection instruction incorporates them, and eURC can be added for electronic presentation.
How it works
- The parties sign a contract specifying D/P, typically D/P at sight, and the collecting bank on the buyer's side.
- The seller ships, obtains original to-order B/Ls and prepares the document set, often with a sight draft.
- The seller hands the documents and collection instruction to its own bank (the remitting bank).
- The remitting bank sends the documents and a URC 522 collection instruction to the collecting bank in the buyer's country.
- The collecting bank notifies the buyer and presents the documents.
- The buyer reviews the documents and pays the collecting bank to receive the originals.
- The collecting bank remits the proceeds to the remitting bank, which credits the seller.
- The buyer uses the original B/L to obtain a delivery order and collect the cargo at destination.
Parties involved
- Principal (Drawer): the exporter, who entrusts the collection to its bank.
- Remitting bank: the exporter's bank, which forwards the documents as instructed.
- Collecting bank: the bank in the importer's country that receives the documents.
- Presenting bank: the bank that presents the documents to the buyer, usually the collecting bank.
- Drawee: the importer, who pays to receive the documents.
Exporter
Advantages
- Keeps control of the goods through the original B/L until the buyer pays.
- Much cheaper than an L/C.
- Simple, with no need for the buyer to have a bank credit line.
Drawbacks
- No bank undertaking to pay; the buyer can refuse the documents.
- If refused, the cargo sits at destination, incurring storage, demurrage and the cost of re-export or a distressed sale.
- Slower than T/T because paper documents travel through banks.
Importer
Advantages
- Pays only once there are documents showing the goods have shipped.
- No cash margin or L/C, low cost.
Drawbacks
- Cannot inspect the goods before paying unless the contract provides for inspection.
- If documents arrive after the cargo, storage charges may accrue.
Cost
Collection charges usually include a remitting fee at the seller's bank, a collection fee at the buyer's bank (often a percentage with a minimum and maximum), courier and message fees. The total is typically well below an L/C. The collection instruction should say who bears which charges; if the buyer refuses to pay charges, URC 522 allows the banks to recover them from the principal.
Practice in Vietnam
In Vietnam, D/P is widely used for exports of agricultural products, seafood and consumer goods to familiar markets. The typical risk is a buyer who uses a falling market as a reason to refuse the documents or to demand a discount once the cargo has arrived. Sellers should prepare a fallback: an agent at the destination port, the ability to change consignee and a budget for re-export. Note also that in some countries importers can take delivery with a straight B/L or a bank letter of indemnity, so the B/L must be made out to order and no original should ever be sent directly to the buyer.
D/P vs CAD vs D/A
| Criterion | D/P | CAD | D/A |
|---|---|---|---|
| When the buyer gets the documents | On payment | On payment or when the deposited funds are released | On accepting the draft |
| When the seller gets paid | When the buyer pays | On presenting compliant documents to the bank holding the deposit | At draft maturity |
| Security for the seller | Medium: cargo controlled via the B/L | Medium to good: funds deposited in advance | Low: only the accepted draft |
| Main seller risk | Buyer refuses, cargo stranded at port | Buyer does not deposit, or the memorandum is too restrictive | Buyer takes the goods but does not pay at maturity |
| Draft required | Optional | Usually not | Yes, a time draft |
| ICC rules | URC 522 | No specific rules | URC 522 |
| Cost | Low to medium | Low to medium | Low to medium |
If a buyer asks for "D/P 30 days after B/L date", the documents will only be released against payment at that date. URC 522 discourages this kind of collection because it is easily confused with D/A.
Frequently asked questions
What happens if the buyer refuses a D/P collection?
The collecting bank advises the refusal and holds the documents pending the seller's instructions. The seller can find another buyer, renegotiate or re-export the goods, and bears the costs incurred at destination.
Do banks examine collection documents as they do under an L/C?
No. Under URC 522 banks only check that the documents received appear to be as listed in the collection instruction; they do not examine their content.
Can a sea waybill be used for D/P?
It is not advisable. A sea waybill is not a document of title, so the consignee can take the goods without paying, which defeats the purpose of D/P.
Can I send collection documents directly to the buyer's bank (direct collection)?
Yes, to save time, if your bank offers this service and the collecting bank is reputable. You still need a proper collection instruction referring to URC 522.
This content is for general guidance and does not replace legal or banking advice for a specific transaction.
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