Cash Against Documents (CAD) Definition
Cash Against Document is a formula for trading internationally due to the fact that it is never easy to settle disputes after such transactions. CAD, therefore, cushions against such disputes that may arise.
The bank usually serves as the neutral intermediary in such transactions. The banks can retain shipment documents to serve as security until that time the payment is made. The ownership of the goods is usually retained by the exporter until such a time that bank releases those documents to the buyer of the goods.
A Little More on What is Cash Against Documents or CAD
This process starts with a transaction being made between buyer and seller and is usually very short and timely. After the goods have been imported, the relevant documents are delivered to the intermediary bank which then deposits them to the importer’s bank until he/she pays the owner of the goods. This is the only way that the client can now fully possess the products.
CAD Transaction Costs
The CAD transactions are cheaper than the value it provides during the exchange. The original buying agreement normally states that between the exporter and the importer who is liable to pay bank document costs. These parties in most instances share this cost.
The following are the benefits that accrue from the usage of CAD in global transactions:
- Affordable costs for all entities.
- Bank Credit line is not necessary
- Very easy to use and implement
- Unlike in the documentary credit situation, the bank doesn’t control the documents
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.
The Bottom Line
Cash Against Documents is a method used in conducting global transactions which entail the use of an intermediary to protect all the parties involved. It is also a very cost effective method which is easily put into action.
References for Cash Against Documents (CAD)
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, Türkcan, 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-Eisenhohr’s (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 customer’s 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 Nestlé 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; Turkey’s 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.