Last Updated January 22, 2026
Striking a deal with an overseas partner is exciting, but it’s important to work on the appropriate payment terms to ensure a smooth transaction from start-to-finish.
Cash Against Documents (CAD) is a payment method that’s become routinely used in international business deals. Not only does Cash Against Documents help bridge the trust gap between importers and exporters, but it also ensures both sides get what they want.
In this article, we will overview what Cash Against Documents payment terms are, how the process works, and the pros and cons of this type of payment process.
Key Takeaways
- Cash Against Documents is a secure international payment method where a neutral third party holds shipping documents until the buyer pays, helping importers and exporters build trust.
- CAD relies on third-party agents or trade finance companies to manage documents, verify accuracy, and ensure both sides meet the agreed terms before goods are released.
- The CAD process is straightforward: the seller ships goods, submits required documents to an intermediary, the buyer pays through their agent, and documents are released so the goods can be collected.
- CAD offers benefits like guaranteed payment and no need for a Letter of Credit, but also comes with drawbacks such as fees, limited flexibility, and the risk of buyers refusing to collect goods.
What Is Cash Against Documents?
Cash Against Documents is a payment arrangement in which a bank or trade finance intermediary holds shipping documents until the buyer pays in full. Instead of relying on standard invoice payment terms, this method ties payment directly to the release of documents needed to receive the goods. For sellers, it adds a layer of security, while buyers gain confidence that documents will only be released once payment is complete.
Unlike traditional payment terms that set a deadline for payment, Cash Against Documents focuses on control rather than timing. Payment is required before documents change hands, creating a balanced structure that reduces risk for both parties.
How Does Cash Against Documents Work?
In a Cash Against Documents transaction, a third-party institution acts as a neutral intermediary. This may be a bank, trade finance company, or independent agent responsible for holding and verifying documents. The seller ships the goods and submits the required documentation to the intermediary, which then notifies the buyer that payment is due.
Once the buyer submits payment, the intermediary releases the shipping documents. These documents allow the buyer to take possession of the goods and complete the transaction. Each party typically works with its own financial institution, creating accountability and minimizing the chance of disputes.
A standard CAD transaction usually involves several documents, including an invoice, export collection form, bill of exchange, bill of lading, and other required shipping paperwork. These documents ensure the transaction is properly recorded and executed.
When Is Cash Against Documents Used?
Cash Against Documents is most commonly used in international trade, where buyers and sellers may not have an established relationship. It is especially useful when goods are being shipped across borders and control over delivery is critical to securing payment.
This method works well for transactions where both parties want protection without the rigidity of traditional payment terms. By linking payment to document release, Cash Against Documents offers a practical balance of security and flexibility in global trade transactions.
Pros and Cons of Cash Against Documents
Beyond mere definitions and procedures, let’s talk about the benefits and downfalls. Why does Cash Against Documents matter and what are the pros and cons for both the importer and exporter? Read on to find out.
| Pros | Cons |
| Guaranteed Payment | Costs |
| Quality Assurance | Lack of Flexibility |
| Quick Process | Risk of Refusal to Pay |
| No Letter of Credit Required | Documentation Errors |
Pros
- Guaranteed Payment: Because the buyer cannot collect the goods until payment is made, the exporter is guaranteed payment.
- Quality Assurance: The importer can be confident that they will receive the goods as specified before parting with their money.
- Quick Process: Unlike other payment methods, CAD is relatively quick, especially compared to longer payment terms such as net 90.
- No Letter of Credit Is Required: The buyer/importer does not need to provide a Letter of Credit with CAD financing because the financial institutions act as intermediaries in the process. This means that even if the buyer and seller have not previously worked together (and, therefore, have not established a foundation of trust), they can rest assured that the payment and goods will each be delivered.
Cons
- Costs: Third-party institutions charge fees for facilitating these transactions (though the fees are typically split between buyer and seller).
- Lack of Flexibility: Unlike other forms of payment, CAD payment does not offer much flexibility in terms of early payment discounts or other trade credit terms.
- Risk of Refusal to Pay: While the buyer cannot collect the goods without paying, they may decide not to collect the goods at all (especially if upon examination they do not meet their expectations). In this case, the seller could choose to have the goods returned back to them, but this will naturally cost more in shipping fees.
- Documentation Errors: Mistakes in invoices can delay the process, making it essential to understand what an invoice is and how to send one.
What Is the Difference Between Cash Against Documents vs. Letter of Credit?
While both aim to secure the best interests of the buyer and seller in international trade, Cash Against Documents (CAD) and a Letter of Credit (LOC) are not the same. A Letter of Credit is a promise from a bank that the buyer will make the full payment to the seller, and if the buyer is unable to pay, the bank will cover the purchase. A Letter of Credit is often required in new business relationships to establish trust between the buyer and seller and is a foundation for extending credit terms.
In contrast, CAD is a payment process between a buyer and seller. It is an alternative way of doing business that does not require the seller to extend credit to the buyer and instead uses financial institutions as intermediaries to facilitate the payment process, ensuring it is secure for both parties.
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Cash Against Documents FAQs
Now let’s dig into some of the most frequently asked questions surrounding cash against documents.
Do Cash Against Documents terms require bank involvement?
No, banks do not need to act as any sort of intermediary with the Cash Against Documents (CAD) payment term process.
Instead, any third-party agent or trade finance intermediary company can hold documents until payment has been confirmed. These can be independent companies, not affiliated with any sort of regulated financial institution.
What’s the difference between Cash Against Documents vs. Documents Against Payment?
Documents Against Payment (D/P) and Cash Against Documents (CAD) are quite similar; however, the one critical difference lies in the timing. In D/P, documents are presented to the buyer through their bank, but payment can be deferred to an agreed date. With CAD, the buyer is often required to make immediate payment.
What is a bill of exchange?
A bill of exchange is a binding document by which the exporter requests the importer to pay a specific amount by a specified date. Understanding the roles of payor vs. payee in this document is crucial for smooth transactions.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.
