There are three forms of documentary collection that are known in business practice. When concluding Agreement, the Purchaser and the Seller agree that the payment of goods or service is performed in the following manner:
Cash Against Documents – CAD In the case of CAD arrangement, commercial and dispatch documents of the exporter and delivered to the importer only upon collection of funds. Therefore, the importer cannot take over goods from the transporter until the payment is completed.
Documents against payment or D/P As well as in case of CAD transaction, commercial and dispatch documents of the exporter are sent through the importer’s Bank for the purpose of funds’ collection. In addition to importing documents, the exporter shall enclose “demand” bill of exchange.
Documents against acceptance or D/A Deferral of payment is offered to importers, under condition that they are ready to accept the bill of exchange that is drawn to exporters in a particular period, for some future period that is fixed. By accepting the bill of exchange, the importer is legally accepting the debt. The acceptance is achieved when the importer provides its signature to the bill of exchange.
Regulations prescribed by the International Chamber of Commerce in Paris (URC 522) are regulating collection operations.