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. 

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.