International trade often begins with a deadlock. You want payment security before letting goods leave your control, while your buyer wants proof of shipment before releasing funds. This gap in expectations is where Cash Against Documents (CAD) fits in.
With Cash Against Documents, you ship the goods but retain control through the documents. Your bank releases the shipping papers to the buyer only after payment is made or a payment commitment is accepted. This reduces your risk without pushing costs as high as a Letter of Credit.
Exporters commonly use CAD when business relationships exist but trust is still evolving. Banks step in as neutral intermediaries for document exchange, not as guarantors.
This guide explains how the Cash Against Documents process works, the documents involved, and how it compares with newer payment alternatives.
Key takeaways
- Cash Against Documents (CAD) balances payment security and cost, sitting between Open Account terms and Letters of Credit.
- Banks in a CAD transaction act only as custodians of documents, not as guarantors of payment.
- CAD works best when business relationships have a track record but still require structured payment control.
- Buyer refusal can lead to demurrage and re-shipment costs, which exporters must factor into pricing decisions.
- As trust and volumes grow, modern digital collection methods can reduce friction, costs, and settlement time.
What Is Cash Against Documents (CAD)?
Cash Against Documents is a trade payment term where you release shipping documents to the buyer only after they make payment. In simple terms, the goods move first, but control stays with you until the money comes in.
The bank’s role here is limited and specific. It holds and releases documents strictly as instructed. Unlike a Letter of Credit, the bank does not guarantee payment. It only acts as a safe custodian.
The system works because of documents of title. In international trade, possession of key documents legally represents possession of the goods. Without them, the buyer cannot access the shipment.
The Core Mechanism: Documents as Collateral
- You ship the goods but keep the original Bill of Lading within the banking system.
- The buyer cannot clear customs or take delivery without this document.
- Payment and documents are exchanged at the buyer’s bank counter, one for the other.
Is CAD the Same as Documents Against Payment (D/P)?
- Yes, CAD and Documents Against Payment are commonly used interchangeably.
- D/P is the formal instruction: release documents only after payment.
- This differs from Documents Against Acceptance (D/A), where documents are released against a promise to pay later.
How the Cash Against Documents Process Works?
A Cash Against Documents transaction follows a clear sequence. While the goods move across borders, the documents move through banks, controlling when ownership changes hands.
Step 1: Agreement and Sales Contract
You and the buyer agree to use Cash Against Documents as the payment term. This appears in the proforma invoice or sales contract. Both sides also confirm the remitting bank (your bank) and the collecting bank (the buyer’s bank).
Step 2: Shipment and Bill of Lading Generation
You arrange transport and ship the goods to the destination port. Once the cargo is loaded, the carrier issues the original Bill of Lading. This document acts as both shipment proof and ownership title.
Step 3: Document Submission to Remitting Bank
You prepare the documentary collection set, including the invoice, Bill of Lading, and insurance papers. These documents go to your bank along with a collection order that clearly states release only against payment.
Step 4: Presentation to the Collecting Bank
Your bank sends the documents to the buyer’s bank overseas. The collecting bank then informs the buyer that the documents have arrived and payment is required.
Step 5: Payment and Document Release
The buyer authorises payment at their bank. Once funds are secured, the collecting bank releases the original documents to the buyer.
Step 6: Customs Clearance and Goods Collection
The buyer presents the Bill of Lading at the destination port. The shipping line releases the cargo, and the transaction reaches closure.
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Essential Documents Required for CAD Transactions
A CAD transaction works only when the document set is complete and accurate. Banks release papers strictly as instructed, so even one missing or incorrect document can delay payment, increase port charges, or block customs clearance. Getting this bundle right is what keeps the process legally sound and operationally smooth.
Bill of Lading (B/L)
Everything in a CAD transaction starts with the Bill of Lading. It is the document that represents ownership of the goods. Without it, the buyer cannot take delivery or clear customs. For CAD, the B/L must be issued “To Order” or blank endorsed so the bank can hold and release it only after payment.
Commercial Invoice and Packing List
Once ownership is controlled, value and contents must be established. The commercial invoice states the amount payable and supports both customs assessment and bank processing. The packing list complements it by detailing how the goods are packed, allowing customs at destination to match paperwork with the physical cargo.
Bill of Exchange (Sight Draft)
After shipment, the payment demand comes into play. The Bill of Exchange, usually a sight draft, is your formal instruction to the buyer to pay a fixed amount on presentation. The bank uses this document to trigger the “pay first, receive documents later” condition under CAD.
Insurance and Origin Certificates
Finally, supporting compliance documents complete the set. The insurance certificate confirms transit cover, which is critical under Cost, Insurance, and Freight (CIF) terms. The certificate of origin establishes where the goods were produced and determines applicable duties and regulatory treatment at import.
Pros and Cons of Using CAD Terms
Cash Against Documents strikes a balance between cost and control, but it shifts risks differently for exporters and importers. Understanding both sides helps you decide when CAD fits your trade cycle, and when it does not.
Advantages for Exporters and Importers
- Lower Cost Compared to Letters of Credit: CAD involves fewer banking services than an LC, which keeps bank charges lower. This makes it a cost-efficient option for both exporters and importers
- Faster Processing With Fewer Approvals: CAD does not require credit assessment or LC issuance. As a result, shipments and payments move with fewer administrative delays.
- Exporter Retains Control Until Payment Is Received: You continue to control the goods through the shipping documents. The buyer cannot take delivery until payment is completed.
- Importer Pays Only After Goods Are Shipped: The buyer releases funds only once shipment has taken place. This reduces the risk of paying for goods that are not dispatched.
| Pros for Exporter | Pros for Importer |
| Control of goods through documents | Payment after shipment |
| Lower bank fees than LCs | No LC issuance or margin |
| Simpler document handling | Faster transaction cycle |
Disadvantages and Key Risks
- Buyer Refusal Can Halt the Transaction Entirely: If the buyer refuses to accept the documents, payment does not take place. In such cases, the goods remain stuck at the destination port, leaving you to manage storage, resale, or re-export.
- Demurrage Charges Can Increase Costs Rapidly: When payment is delayed, ports and shipping lines levy daily storage and detention charges. These costs add up quickly and can significantly reduce or even wipe out your profit margin.
- There Is No Bank Guarantee of Payment: Banks involved in CAD only handle the exchange of documents as per instructions. If the buyer defaults or refuses to pay, the bank does not compensate the exporter.
- Buyers Have Limited Ability to Inspect Goods Before Payment: Under CAD terms, buyers usually make payment based only on the shipping documents. Since they cannot physically examine the goods before release, this can lead to disputes if the delivered goods do not meet expectations.
Pro Tip: Use CAD only with buyers who have a proven payment record and predictable import timelines. Adding clear quality specifications and inspection clauses in the contract can help prevent document-based disputes later.
Comparison: CAD vs. Other Export Payment Terms
Cash Against Documents vs. Letter of Credit (LC)
When payment certainty matters most, Letters of Credit lead the pack. An LC gives you a bank guarantee, meaning payment depends on document compliance, not buyer intent. CAD offers no such guarantee. The trade-off lies in cost and effort. LCs involve issuance charges, confirmation fees, and strict document scrutiny. CAD, by contrast, follows simpler instructions and keeps banking costs lower.
Cash Against Documents vs. Open Account
Open Account terms sit at the opposite end of the scale. Here, goods are released before payment, which exposes you fully to buyer risk. This model works only when trust is high and relationships are mature. CAD reduces that exposure by ensuring payment happens before documents change hands. It also supports healthier cash flow, as Open Account deals often stretch payments to 30–90 days.
CAD vs. Documents Against Acceptance
The key difference here is timing. Under CAD, the buyer must pay immediately to access documents. With Documents Against Acceptance, the buyer signs a promise to pay later and still receives the documents. That added flexibility increases risk, as goods move before cash is received.
Pro Tip: Choose Cash Against Documents when you need better control than open account terms but want to avoid the cost and rigidity of a Letter of Credit. As trust strengthens, you can move towards open account or D/A for speed, but only after assessing how much payment delay and risk your cash flow can absorb.
Alternatives to Cash Against Documents for Exporters
As buyer relationships mature, exporters often reassess whether Cash Against Documents still fits their operating needs. When trust improves, many shift to collection methods that reduce costs, speed up settlement, or simplify administration.
Traditional Bank Transfers (SWIFT)
Traditional SWIFT transfers are widely used for open account transactions with established buyers.
However, this method has clear limitations.
- Bank charges, intermediary fees, and exchange rate mark-ups reduce the final amount you receive.
- Payment tracking remains limited, which makes follow-ups slow and dependent on bank queries.
- Settlement timelines can stretch unpredictably due to correspondent bank involvement.
Trade Credit Insurance
Trade credit insurance lets you move beyond document-driven security and manage payment risk through insurance instead.
- It lets you sell on open account terms while covering losses caused by buyer non-payment.
- It removes the need for bank-managed document control under CAD, though it introduces an insurance premium as an added cost.
- It works best when you want to scale volumes with trusted overseas buyers without carrying the full credit risk on your balance sheet.
Razorpay MoneySaver Export Account
Once buyer trust is established, exporters often look for ways to simplify collections without sacrificing compliance. The Razorpay MoneySaver Export Account addresses this need by replacing document-heavy bank processes with a digital collection model designed for smooth overseas payments.
- It allows exporters to receive international payments without depending on expensive SWIFT transfers, which helps reduce collection costs.
- Offers local account details in key markets such as the US, UK, and Europe, enabling faster and smoother settlements.
- Automates Foreign Inward Remittance Certificate (FIRC) generation, easing ongoing FEMA and banking compliance for Indian exporters.
- It works best for exporters dealing with established buyers, where the strict controls of Cash Against Documents are no longer essential.
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Comparison: Collection Methods
| Aspect | Traditional Bank CAD | Digital Export Accounts |
| Fees | Charges remain high due to banks and couriers | Costs stay lower with transparent pricing |
| Speed | Document movement slows down settlements | Funds arrive faster without physical paperwork |
| Paperwork | Manual handling remains extensive | Most processes run digitally |
Conclusion
Cash Against Documents gives you a practical balance in cross-border trade. You keep control of the goods through documents, while the buyer pays only after those documents arrive. This structure reduces risk without adding the cost and rigidity of a Letter of Credit.
CAD works best when the relationship is established, but full payment comfort has not yet developed. It clearly sits between high-risk Open Account terms and bank-guaranteed LCs, making it a sensible choice for many growing exporter–buyer relationships.
That said, CAD is not risk-free. You still face the possibility of buyer refusal, port delays, and demurrage if payment does not happen on time. These risks must be weighed against the savings on bank fees.
As relationships mature, many exporters move towards digital export accounts and modern payment rails to cut friction, speed up collections, and lower transaction costs further.
FAQs
Q1. What is the difference between Cash Against Documents and a Letter of Credit?
A Letter of Credit carries a bank’s payment guarantee, even if the buyer defaults. In Cash Against Documents, the bank only holds and releases documents and does not take payment risk.
Q2. Is Cash Against Documents safe for exporters?
CAD is safer than Open Account terms but less secure than an LC. If the buyer refuses to pay, you still own the goods but may face demurrage and return freight costs.
Q3. Can the buyer inspect the goods before payment in a CAD transaction?
Generally, no. Payment is made against documents such as the Bill of Lading and invoice. Physical inspection happens only after the documents are released.
Q4. What happens if the buyer refuses to accept the documents?
The bank retains the documents and ownership does not transfer. However, the goods remain stuck at the destination port, and you must arrange resale or re-shipment.
Q5. Is Cash Against Documents the same as Documents Against Payment?
Yes. CAD and Documents Against Payment are commonly used to describe the same arrangement—documents are released only after immediate payment.
Q6. Who typically pays the bank fees in a CAD transaction?
Collection charges are much lower than LC fees and are usually shared between exporter and importer, based on the sales contract.
Q7. What documents are required for a CAD transaction?
The standard set includes the Bill of Lading, Commercial Invoice, Packing List, Insurance Certificate, and a Bill of Exchange (Sight Draft).
