What Is Cash Against Documents and How Does It Work?

cash against documents

Last Updated September 28, 2023

So you’ve struck a lucrative deal overseas. The contract is signed; now comes the stressful part. Will you get paid? Will the products arrive? Dive into the world of Cash Against Documents (CAD), the international payment method that can be beneficial for both buyers and sellers. 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.

What Is Cash Against Documents?

Cash Against Documents is a payment agreement that involves the bank acting as a neutral entity to hold shipping documents until the importer pays in full. If you’ve been mulling over standard invoice payment terms, consider this a level up.

Cash Against Documents differs from other payment terms that essentially act as a time frame during which the seller can expect payment. Rather than putting a time stamp on when payment is due, CAD is a powerful mechanism that secures payments and the exchange of goods, instilling confidence in both the buyer and seller.

Main Components of the Cash Against Documents Process

Understanding basic business accounting and invoice payment terms is one thing; navigating CAD terms is another, as it can be viewed as a complex process if you don’t have experience with this method. Before jumping into how the Cash Against Documents process works, we will first overview each of the components you can expect to encounter.

The Purchased Goods

Cash Against Documents is typically used in international trade, and the goods that are being imported/exported are a part of the process. Specifically, the purchased goods are held until the payment has been made by the buyer. Once the importer makes the payment, the shipping documents are released, and the purchased goods can be delivered to their final destination.

Financial Institutions

Unlike more traditional types of invoice terms and payment processes that simply require you to hand over a check or click ‘Pay Now’ on an electronic invoice, Cash Against Documents requires the use of financial institutions to mediate the process. Banks act as the trust anchor with CAD, offering a structure that ensures both parties stick to the payment terms and all documents are accurate. With Cash Against Documents, each party works with their own bank, and your bank becomes your partner in minimizing risk.


In a CAD transaction, a mix of several document types are typically required. These can include an invoice, Export Collection form, Bill of Exchange, Bill of Lading, and additional shipping documents.

Step-by-Step Example of the Cash Against Documents Process

Now, let’s dig into Cash Against Documents step-by-step to provide further clarity on how this all works.

To illustrate the process, imagine a scenario where India-based XYZ Co. has products ready to be shipped to ABC Inc. in the United States.

Here’s how the transaction would work in this scenario from start to finish:

  1. All details of the transaction have already been agreed upon between the two parties, such as the product, quantity, delivery date, payment terms, and other taxes and fees.
  2. XYZ Co. prepares the goods to be shipped and includes all of the required documents such as the original pro forma invoice, purchase order, packing list, origin of certification, and Bill of Lading (proof of shipment).
  3. Here’s where Cash Against Documents comes to the forefront. XYZ Co. sends these documents to their bank, who holds the documents until payment is received.
  4. ABC Inc. submits payment to their own bank.
  5. Then, ABC Inc.’s bank sends the payment to XYZ Co.’s bank.
  6. Upon receipt of payment, XYZ Co.’s bank releases the shipping documents to ABC Inc.’s bank, who remits the documents to ABC Inc.
  7. ABC Inc. then takes ownership of the purchased goods and can clear them through customs.

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


  • 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.


  • Costs: Banks 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.

Cash Against Documents FAQs

Now let’s dig into some of the most frequently asked questions surrounding cash against documents.

What’s 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.

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.