Documentary collection
In one sentenceA payment method in foreign trade in which the exporter's bank sends the shipping documents to the importer's bank, and they are released only against payment or acceptance of a bill of exchange.
Simply put
In a documentary collection the banks only pass on the documents: the importer does not receive the goods' documents to clear them from the port until paying or signing an undertaking to pay.
It is cheaper than a letter of credit, but the bank does not guarantee payment, so it suits dealing with a trusted buyer.
Example
A Saudi factory exports products to a known customer abroad. It hands the shipping documents to its bank with a documentary collection request, and the customer receives the documents from its bank only after paying the invoice amount.
Don't confuse it with
Letter of creditIn a letter of credit the importer's bank undertakes to pay, while in a collection no one undertakes to pay except the buyer.