We’ve put together the basics you need to know about CAD (Cash Against Documents), a common payment process for international transactions.
What is CAD (Cash Against Documents)?
Cash Against Documents is a payment agreement for international transactions between a shipper (exporter) and a buyer (importer) of exported goods. CAD uses neutral intermediaries, like a bank or financial institution, to exchange shipping documentation and payment for goods. There a couple different forms of CAD, including:
- Documentary Collection – Occurs when both the exporter and importer use their banks as intermediaries. The banks collect the payment and documents from the appropriate parties, exchange the documents for payment, and then provide the exporter with payment and the importer with the documents.
- CAD Express Release – Parties use a single intermediary, such as a mutual financial institution or the exporter’s factoring company, to handle the payment and document exchange. When the goods reach their destination, the importer is provided with printed documents to help expedite the shipping and receiving process.
What is the CAD Process?
Let’s look at the steps of a typical CAD process, from start to finish. Imagine a scenario where China-based ABC Co. has products ready to be shipped to EFG Inc. in the United States:
- All details of the transaction are agreed upon between the two parties, such as the product, quantity, delivery date, payment, and more.
- ABC Co. prepares the goods to be shipped and prepares the required documents such as a purchase order, packing list, origin of certification, and Bill of Lading (proof of shipment).
- Here’s where Cash Against Documents comes into play. ABC Co. sends these documents to its bank, who holds the documents until payment is received.
- EFG Inc. submits payment to its own bank.
- Then, EFG Inc.’s bank sends the payment to ABC Co.’s bank.
- Upon receipt of payment, ABC Co.’s bank releases the shipping documents to EFG Inc.’s bank, which then releases the documents to EFG Inc.
- EFG Inc. then takes ownership of the purchased goods and can clear them through customs.
What Are the Benefits of CAD?
Using CAD for importing and exporting goods provides a safe and secure way to exchange documents and payments. By utilizing unbiased banks and/or financial institutions, the buyer can feel more confident about receiving the paperwork they need, and the shipper is less likely to have issues or disputes receiving payment. This allows the exporter the ability to extend terms in the form of transit time, while maintaining control of the shipment.
Additionally, the process is typically fast and easy and allows both the importer and exporter to get what they need quicker than if they had to wait for the full length of transit time. There is also more flexibility with payment terms and document delivery, especially if the exporter is using a factoring company as the intermediary.
What Are the Challenges of CAD?
The CAD process comes with potential challenges that need to be addressed:
- Clarity on Terms: Both buyers and sellers must fully understand the terms of CAD, including payment deadlines and the specific documents required for the transaction.
- Documentation Accuracy: Errors in invoices can lead to delays, so it’s crucial to know how to properly create and submit your documents.
- Bank Reliability: The CAD process relies on trustworthy financial institutions, making it important for both parties to choose reputable banks.
- Effective Communication: Smooth CAD transactions require timely and clear communication among all parties involved.
Why Choose RTS International for Your CAD Financing Needs?
RTS International is a pioneer of financing using CAD with almost a decade of experience working with importers and exporters in over 40 different countries. With RTS International, exporters can receive quick, customized funding solutions to increase cash flow and accelerate their growth while gaining greater financial stability.