Documents Against Acceptance (D/A)

Documents against acceptance (D/A) is a release instruction used in a documentary collection under which the bank hands the shipping documents to the importer once the importer accepts a time draft, a bill of exchange payable at a future date. By signing the draft the importer commits to pay on maturity, for example 90 days after sight, and in exchange it can collect the goods straight away.

D/A is a way for an exporter to give credit to a buyer while still formalising the debt in a negotiable instrument. It is the deferred-payment counterpart of cash against documents, also known as documents against payment, and it is usually handled under the ICC Uniform Rules for Collections (URC 522). Unlike a usance letter of credit, no bank is committed to pay at maturity unless one has separately guaranteed the draft.

Picture a wholesaler letting a shop owner take a delivery today on the strength of a signed, dated promise to pay in three months. The shop can sell the goods and use the takings to settle the bill. The wholesaler gets a formal IOU that it can show to a court, or sell to its bank for cash now, slightly below face value.

The weak point is obvious: once the goods leave, the wholesaler is relying on the shop to keep its promise. The signed paper helps, because breaking it has legal and reputational costs, but it is not the same as cash. D/A therefore suits buyers the seller already knows and trusts.

1. The exporter ships the goods and lodges the documents, including a time draft drawn on the importer, with its bank under a collection instruction marked D/A.
2. The documents travel to a presenting bank in the importer's country.
3. The importer signs the draft as accepted, and the bank releases the documents. The goods can now be cleared.
4. The accepted draft, now a trade acceptance, is held by the presenting bank for presentation at maturity or returned to the exporter, as instructed.
5. At maturity the importer pays, and the proceeds are remitted to the exporter. If it does not pay, the bank can arrange protest if the instruction calls for it.

Tenors are usually expressed as a number of days after sight or after the bill of lading date, commonly 30, 60, 90, 120 or 180 days. URC 522 requires the collection instruction to state whether documents are released against acceptance or payment when the draft is payable at a future date, and it discourages combining a future-dated draft with release against payment, so D/A is the normal pairing for time drafts.

Many exporters do not want to wait until maturity. An accepted bill can be sold to a bank under export bill discounting, usually with recourse to the exporter. On a simple discount basis the proceeds are:

• $P$ is the cash the exporter receives before fees.
• $F$ is the face value of the accepted draft.
• $d$ is the annual discount rate, as a decimal.
• $t$ is the number of days to maturity (some markets use a 365-day year).

For a draft of 100,000 maturing in 90 days at an 8% discount rate, the discount is 100,000 × 0.08 × 90/360, which is 2,000, so the exporter receives 98,000. If the importer's bank adds its aval, guaranteeing the draft, the bill can often be sold without recourse through forfaiting at a lower rate, because the risk is then on the bank rather than the importer.

• Buyer default. The exporter has given up the goods and holds only a claim. This is unsecured credit risk, much like an invoice on open account, with the added strength of an accepted bill.
• Transfer and country risk. The importer may pay in local currency while foreign exchange for remittance is unavailable.
• Disputes over quality. An importer that finds problems with the goods may refuse to pay at maturity even though it accepted the draft, leaving the exporter to sue on the bill.

Exporters manage these risks with buyer credit limits, avalised drafts, export credit insurance or trade credit insurance policies that cover protracted default, and by keeping D/A for established customers.

For the buyer, D/A is a form of supplier credit: it obtains goods now and pays later, often after reselling them, which improves its working capital. For the seller the same tenor lengthens days sales outstanding unless the bill is discounted. Because the receivable is a negotiable instrument rather than an ordinary invoice, D/A receivables are often easier to finance than plain accounts receivable.

• International Chamber of Commerce