Cash Against Documents (CAD) in International Trade
What is Cash Against Documents (CAD)?
Cash Against Documents (CAD), also known as Documents Against Payment (DAP), is a payment term used in international trade where the seller retains possession of the goods until the buyer pays for them in full. The payment is typically made through a bank, which acts as an intermediary to ensure that both parties meet their obligations.
How does Cash Against Documents (CAD) work?
Under a CAD agreement, the seller ships the goods to the buyer, but the shipping documents (e.g., bill of lading, invoice) are held by the bank until the buyer pays for the goods in full. Once payment is received, the bank releases the documents to the buyer, who can then take possession of the goods.
Advantages of Cash Against Documents (CAD)
- Security for the seller: The seller retains possession of the goods until payment is received, reducing the risk of non-payment.
- Convenience: The bank acts as a neutral intermediary, facilitating the payment process and ensuring compliance with the terms of the agreement.
- Flexibility: CAD can be tailored to meet the specific needs of the parties involved.
Disadvantages of Cash Against Documents (CAD)
- Delay in delivery: The buyer may have to wait until payment is received before taking possession of the goods.
- Cost: Bank fees associated with CAD transactions can increase the overall cost of the transaction.
- Risk of fraud: As with any payment method, there is a risk of fraud, such as forged documents or misrepresentation of goods.
When to use Cash Against Documents (CAD)
CAD is particularly suitable for transactions between parties who do not have an established relationship or trust. It is also commonly used in high-value transactions or in situations where the buyer is located in a country with a high risk of non-payment.
Conclusion
Cash Against Documents (CAD) is a secure and convenient payment method used in international trade. By understanding the advantages and disadvantages of CAD, businesses can determine if it is the right payment option for their specific transaction.
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