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Cash Against Documents - Explained

What is Cash Against Documents?

Written by Jason Gordon

Updated at July 22nd, 2021

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Table of Contents

What is Cash Against Documents (CAD)?What are the Steps in the Cash Against Documents Process?What are the Disadvantages of Cash Against Document Transactions?Academic Research for Cash Against Documents (CAD)

What is Cash Against Documents (CAD)?

Cash Against Documents, also known as Documents Against Payment, is a characteristic of a letter of credit used in international sales transactions. 

  • Read more on How a Letter of Credit works.

It is an alternative to Documents Against Acceptance.

It is a Cash on Delivery type of transaction, wherein the purchaser of goods receives ownership of goods (in the form of documents of ownership) from the bank upon making payment for the goods.

In such a transaction, a bank serves as the neutral intermediary and retains shipment documents to serve as security until that time the payment is made by the purchaser.

What are the Steps in the Cash Against Documents Process?

  1. The Seller of Goods (Exporter) ships the goods to the location of the Purchaser of the Goods (Importer).
  2. The Exporter takes the Ownership Documents (usually a Bill of Lading) to its Bank (Exporter Bank)
  3. The Exporter Bank then sends the Ownership Documents to the bank of the Importer (Importer's Bank).
  4. The Importer will then pay the purchase price in the sales transaction (using Cash) to the Importer Bank and will receive the Ownership Documents.
  5. The Importer may then claim ownership and receive the goods at customs.
  6. The Importer's Bank will then pay that money (minus a fee) to the Exporter's Bank.
  7. The Exporter's Bank will then pay that money (minus a fee) to the Exporter.

Once the buyer makes payment, the bank will surrender the documents evidencing ownership of the subject goods. 

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

What are the Disadvantages of Cash Against Document Transactions?

CAD method has also a share of its disadvantages like:

  • Lack of guarantee that the importer will pay to complete the transaction
  • Seller may suffer a loss by paying more shipping costs when the goods are rejected.
  • Poor bank processes that prematurely grant documents to the importer.

Academic Research for Cash Against Documents (CAD)

  • Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey, Trkcan, K., & Avsar, V. (2016). Global Economy Journal, 16(1), 135-160. The article investigates the impact of financial and legal conditions on the choice of payment by testing the forecasts of Schmidt-Eisenhohrs (2013) model with trade finance data from Turkey. The results indicate an improvement in contract enforcement and an increase in financing cost in exporting country increases/decreases the share of after shipment sales. The opposite is true in the case of prepayment sales
  • FACTORS INFLUENCING CORPORATE CUSTOMERS'ACCEPTANCE OF INTERNET BANKING: CASE OF SCANDINAVIAN TRADE FINANCE CUSTOMERS, Vainio, H. M. (2006). Unpublished M. Sc. Thesis in Accounting. The Swedish School of Economics and Business Administration. This section is concerned with factors that influence customers acceptance of internet banking using Scandinavian Trade Finance Customers as the case study.
  • Fallout Problems as the Dollar Bombs, Mertz, R. D. (1988). Business Law Review, 9(3), 54-56. The paper talks about the challenges that arise as a result of the Dollar Bombs
  • A New Fair Trade Model for Online Shopping, Chiou, K. Z., Lin, C. T., Lin, H. C., Tu, J. H., & Yen, S. M. A The section is talking about a brand new model of trade for conducting online shopping.
  • A study of import process of Nestl Bangladesh, Tasneem, J. (2014). This study was conducted in Nestle Bangladesh, a firm that produces soups, milk, noodles, beverages amongst others. The aim was to find out the import procedure used by Bangladesh in importing raw materials using Supply Chain and Treasury Department (SCTD) that opens up Cash Against Documents once the order has been confirmed. The most commonly used method of payment in Nestle Bangladesh is the Letter of Credit (L/C) because it covers the potential perils that the two trading parties would like to share. In conclusion, this L/C enables banks to facilitate NBL so as to guarantee payment to the supplier.
  • FINANCIAL COMPARISON OF IMPORTS AND EXPORTS IN TURKEY, Baslangic, S. O., & Susmus, In of the 9 th International Conference The Economies of (p. 49). The author here talks about the financial comparisons of exports and imports in Turkey.
  • Export financing in Bangladesh a study of export credit by financial institutions, Karim, N. This report is concerned with how exports are financed in Bangladesh by using export credit by financial institutions.
  • Risk Management of the Equipment Supply Process in the Power Plant Projects in Iran, Etemadinia, H., & Tavakolan, M. The paper examines risk management of the Equipment Supply Process in the Power Plant Projects in Iran.
  • Operations of Credit Administration Department (CAD) of IDLC Finance Limited, Morshed, N. (2015). The paper talks about the non-bank financial institutions (NBFIs) like ICDL. NBFIs have improved the quality of financial services to enhance the requirements of investments in the country. Financial institutions in Bangladesh started using ICDL in 1985. IDCL has two separate branches namely Investments Limited and IDCL Securities Limited. The author goes ahead to give information on the roles of credit administration in IDCL Finance Limited.
  • Trading with Czechoslovakia, Unctad Secretariat. (1988). Foreign Trade Review, 23(2), 170-185. This article is concerned with Foreign Trade Review in reference to trading with Czechoslovakia.
  • Evolving patterns of payment methods in Turkish foreign trade, Turkcan, K. (2015). The paper discusses how payment methods have evolved in the Turkish foreign trade by dwelling on the methods of payments in global trade. 3 outcomes are derived namely; Turkeys exports are financed through open account while its imports are paid via cash in advance, foreign trading shares in Turkey increased while shares decreased. Finally, the article shows that exports and imports started to use cash-in advance which is the safest method of payment. Finally, the paper demonstrates that Turkey traders are unable to set payments that favor them. This is because of the risks associated with global transactions.
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