CAD Payment Terms: Cash Against Documents

CAD payment terms (Cash Against Documents), also known as D/P (Documents against Payment), is a documentary collection method where the buyer pays for goods upon presentation of shipping documents through the banking system. Unlike a direct TT payment, CAD uses the banks as intermediaries to control document release, providing the seller with assurance that payment will be received before the buyer obtains the documents needed to claim the goods.

How CAD Payment Works

The CAD process involves four parties and follows these steps:

1. The seller ships the goods and obtains shipping documents (Bill of Lading, commercial invoice, packing list, inspection certificates)
2. The seller submits documents to their bank (remitting bank) with collection instructions
3. The remitting bank forwards documents to the buyer’s bank (collecting/presenting bank)
4. The buyer’s bank notifies the buyer that documents are available
5. The buyer pays the full invoice amount to their bank
6. The buyer’s bank releases the documents and remits payment to the seller’s bank
7. The seller receives payment

CAD vs LC vs TT Comparison

Feature	CAD (D/P)	LC	TT
Bank role	Intermediary (no guarantee)	Guarantor of payment	Transfer agent only
Payment guarantee	No	Yes (bank obligation)	No
Document control	Yes (bank holds docs)	Yes (bank examines docs)	No
Cost	0.1-0.3% of value	0.5-2% of value	$15-50 flat fee
Processing time	5-10 business days	5-15 business days	1-3 business days
Buyer risk	Low (pays against docs)	Low (bank verifies docs)	High (advance) or Low (after delivery)
Seller risk	Moderate (buyer may refuse)	Low (bank pays)	High (after delivery) or Low (advance)
UCP/URC rules	URC 522	UCP 600	None

When to Use CAD Payment Terms

Scenario	CAD Suitable?	Rationale
Established supplier relationship	Yes	Trust exists; document control sufficient
New supplier, large order	No	Use LC for payment guarantee
Repeat orders, moderate value	Yes	Cost-effective alternative to LC
Buyer in high-risk country	No	Buyer may refuse documents; use LC
Buyer has strong credit history	Yes	Low default risk
Perishable or custom-made goods	Caution	If buyer refuses, seller has limited recourse

Pro Tip

For piping material procurement, CAD works well when the buyer and seller have completed at least 2-3 successful transactions. The cost savings compared to LC (typically 0.5-1.5% of order value) can be significant on large pipe and valve orders. However, always use a confirmed LC for first-time transactions or when trading with counterparties in countries with currency controls or political instability.

Risk Mitigation

The main risk with CAD is that the buyer may refuse to pay and collect the documents, leaving the seller with goods stranded at the destination port. To mitigate this:

• Ensure the goods are not custom-manufactured and can be resold
• Ship to a neutral bonded warehouse rather than directly to the buyer
• Request a partial advance payment (e.g., 20% TT advance + 80% CAD) to demonstrate buyer commitment
• Use CAD with a time draft (D/A - Documents against Acceptance) to give the buyer a defined payment period while securing a signed bill of exchange

CAD terms should be combined with appropriate Incoterms and clearly stated in the purchase order. For information on alternative trade finance methods, see factoring and forfaiting.

Read the full guide to Incoterms