Payment & trade finance D/P · CAD

Documents against payment / Cash against documents (D/P – CAD)

A collection method in which the seller sends the documents of title – above all the original bill of lading – through its bank to the buyer’s bank, which releases them only when the buyer pays; it is governed by URC 522. It is cheaper than a letter of credit, but no bank guarantees payment: if the buyer refuses the documents, the goods sit at the destination port and the seller faces demurrage, return freight or a distressed sale. Suitable for trusted, long-standing relationships.

Related terms

Documents against acceptance (D/A) D/A

The deferred form of documentary collection: the buyer obtains the documents – and therefore the goods – by accepting a time draft (e.g. 60 days) and pays at maturity. The seller is left holding only the accepted draft and loses control of the goods, so the risk is close to open account; D/A is usually combined with credit insurance or a bank aval guaranteeing the draft.

Letter of credit (L/C) L/C

A documentary payment method in which the buyer’s bank (issuing bank) undertakes to pay the seller against timely presentation of complying documents specified in the credit – bill of lading, invoice, certificate of analysis, certificate of origin and so on. Banks deal only with documents, not goods, so the credit terms must match the sales contract exactly and be achievable. It is the most common secure payment method for large raw material deals and first-time counterparties.

Bill of lading (B/L) B/L

The key document of sea transport, issued by the carrier to show that it has received or loaded the goods. It has three functions: a receipt for the cargo, evidence of the contract of carriage and, when issued “to order”, a document of title. Because whoever presents an original can take delivery, it is the backbone of letters of credit and cash-against-documents deals. A “clean on board” B/L shows the goods were loaded in apparent good order.

Explained in the trade handbook

Trade handbook