What is the difference between L/C and D/P payment

  Replying to [HelenJollee]:

LC is basically a written undertaking by the issuing bank to guarantee that the payment will be honoured upon presentation of documents in compliance with the terms and conditions of the LC.


DP or Collections does not constitute an undertaking by presenting bank or accepting bank. Payment under DP is absolutely at the discretion of the buyer. Bank is merely acting as an 'collecting agent'. Buyer may refuse payment. Under Collections guideline (URC 522), collecting bank can keep the documents up to a maximum of 60 days and shall return to the presenting bank should the documents remain unpaid. Collecting bank is not obligated to examine the documents.


Unlike LC, bank is only restricted to a maximum of 5 banking days to  examine and decide whether to take up the documents or to refuse payment.


Comparatively, LC is much safer than Collections (D/P). However, D/P is also widely practiced in international trade especially between subsidiary companies or between parties that have established a good business relationships.