International trade payments
Cash Against Documents (CAD) in International Trade
CAD (cash against documents) is a method in which the buyer deposits funds or opens a trust account with a bank, usually in the seller's country, and the bank pays the seller on presentation of documents matching a memorandum. In many markets the term CAD is also used for a collection very similar to D/P.
- Exporter risk
- Risk level 3/5
- Importer risk
- Risk level 3/5
- Cost
- ●●○○○
- Applicable rules
- There are no ICC rules specific to CAD; rights and obligations rest on the sales contract and the memorandum with the bank, and where CAD is handled as a collection it may refer to URC 522.
How it works
- The parties sign a contract specifying CAD, the bank holding the funds and the list of documents to be presented.
- The buyer, or its representative, signs a memorandum with the designated bank and deposits 100 percent of the value or opens a trust account.
- The bank notifies the seller that the funds are held and of the presentation conditions.
- The seller ships and prepares documents exactly as listed in the memorandum.
- The seller presents the documents to the bank holding the deposit within the validity period.
- The bank checks the documents against the memorandum and, if they match, pays the seller from the deposit.
- The bank hands the documents to the buyer or forwards them to the buyer's bank so the buyer can take delivery.
Parties involved
- Buyer: makes the deposit and sets the payment conditions in the memorandum.
- Seller: ships and presents documents to be paid.
- Trust or escrow bank: usually in the seller's country, checks the documents and pays according to the memorandum.
- Buyer's representative (if any): may be authorised to receive documents or inspect goods in the seller's country.
Exporter
Advantages
- Knows the money is available before shipping.
- Cheaper than an L/C.
- Paid quickly in its own country once documents comply.
Drawbacks
- No independent bank undertaking as under an L/C; protection depends on the wording of the memorandum.
- Deposits often have a short validity, so a late shipment can forfeit payment.
Importer
Advantages
- Cheaper than an L/C and needs no credit line.
- Controls which documents must exist before funds are released.
Drawbacks
- Cash is tied up from the moment of deposit.
- Protection is at document level only, not on the actual quality of the goods.
Cost
CAD costs usually include a deposit or trust account management fee, a document checking fee and transfer fees, and are generally lower than for an L/C. The buyer also bears the opportunity cost of the deposited funds until shipment.
Practice in Vietnam
In Vietnamese textbooks and practice, CAD is typically described as the buyer opening a trust account at a bank in the exporter's country, and it is common in exports of rice, coffee and other agricultural products to traders with representative offices in Vietnam. Because CAD is understood differently across markets, the contract must spell out the mechanism: who holds the funds, which documents, where they are presented and the final date. A bare "CAD" clause easily leads to disputes or is read as D/P.
Frequently asked questions
How does CAD differ from D/P?
Under D/P the seller ships first and only learns whether the buyer will pay when the documents arrive. Under deposit-based CAD the money is already at the bank before shipment and is paid out on presentation of compliant documents.
Is CAD as safe as an L/C?
Not entirely. The bank in a CAD only follows the memorandum and gives no independent undertaking under UCP 600. The risk depends heavily on the memorandum wording and the deposit validity.
What should the contract say when choosing CAD?
State the bank holding the funds, the amount and validity of the deposit, the list of documents, the place and deadline for presentation, and how discrepancies are handled.
This content is for general guidance and does not replace legal or banking advice for a specific transaction.
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