Define: Cash Against Documents

Cash Against Documents (CAD) is a payment method in international trade where the buyer pays for goods before receiving them. The buyer’s bank releases the payment to the seller’s bank upon presentation of specified documents, such as the bill of lading or invoice.

CAD can be a secure payment method if both parties adhere to the agreed-upon terms and conditions. It is essential to ensure that the documents presented are accurate and comply with the terms of the agreement to avoid any disputes or payment delays.

The specific documents required may vary depending on the agreement between the buyer and seller. However, common documents include the commercial invoice, bill of lading, packing list, insurance certificate, and any other documents specified in the contract.

In most cases, the buyer does not have the opportunity to inspect the goods before making payment in a CAD transaction. The payment is made based on the trust and confidence established between the buyer and seller.

If the documents presented by the seller are incorrect or incomplete, the buyer’s bank may refuse to release the payment. It is crucial for both parties to ensure that the documents are accurate and comply with the agreed-upon terms to avoid any payment disputes.

There are inherent risks in CAD transactions, primarily for the buyer. If the seller fails to deliver the goods as per the agreed terms or if the documents are fraudulent, the buyer may face financial loss. It is advisable to conduct due diligence and establish trust with the seller before engaging in CAD transactions.

The legal requirements and regulations governing CAD transactions may vary depending on the jurisdiction and the specific terms agreed upon by the parties involved. It is advisable to consult with legal professionals or trade experts to ensure compliance with applicable laws and regulations.

CAD can be used for various types of goods, including both perishable and non-perishable items. However, certain goods may require additional documentation or compliance with specific regulations, such as hazardous materials or controlled substances.

Alternatives to CAD include methods such as Letters of Credit (LC), Documentary Collections, or Open Account terms. Each method has its own advantages and considerations, and the choice depends on the specific circumstances and risk tolerance of the parties involved.