Cash Against Documents (CAD): A Guide for International Traders
What is Cash Against Documents (CAD)?
Cash Against Documents (CAD), also known as Documents Against Payment, is a type of international trade transaction where the payment for goods is made against the presentation of shipping documents, typically a bill of lading or airway bill.
How CAD Works
In a CAD transaction, the seller ships the goods to the buyer and prepares the necessary shipping documents. The seller then presents the documents to the buyer's bank, which holds the documents until the buyer makes full payment.
Once the buyer makes payment, the bank releases the shipping documents to the buyer, allowing them to take possession of the goods.
Benefits of CAD
- Provides security for both the buyer and seller.
- Ensures that the buyer receives the goods before making payment.
- Provides a way for sellers to finance their exports.
- Simplifies the international trade process.
Risks of CAD
- Can be more expensive than other payment methods.
- Can delay the release of goods if there is a dispute over payment.
- Requires a high level of trust between the buyer and seller.
When to Use CAD
CAD is typically used in international trade transactions where there is a high level of trust between the buyer and seller. It is also a good option when the buyer wants to ensure that they receive the goods before making payment.
Alternatives to CAD
There are a number of alternatives to CAD available for international trade transactions, including:
- Letters of Credit (LCs)
- Open Account
- Documentary Collections
- Wire Transfer
Conclusion
Cash Against Documents (CAD) is a payment method used in international trade that involves the bank acting as a neutral entity to hold shipping documents until the importer pays in full. CAD provides security for both the buyer and seller and ensures that the buyer receives the goods before making payment.
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