CAD (Cash Against Documents) – what is it?
In the B2B commerce environment of Foodcom S.A., catering to the food, feed, and industrial sectors, CAD (Cash Against Documents) refers to a payment arrangement in which the buyer remits payment in the form of cash or a cash equivalent only upon receiving the seller’s shipping documents. These documents, typically including the bill of lading, invoice, and other relevant paperwork, prove that the seller has dispatched the goods as per agreement. The essence of CAD is to ensure that payment is made only when there’s evidence of goods being shipped, thereby safeguarding both parties’ interests.
Most common questions
1. Why is CAD a preferred payment method in international trade?
CAD offers a balanced approach for both buyers and sellers. The buyer is assured that they will make payment only when the goods have been shipped, while the seller is confident of receiving payment once shipping documents are presented. It’s a method that provides a degree of protection to both parties, especially in transactions where trust is still being established.
2. How does CAD work in practice?
Upon shipping the goods, the seller sends the shipping documents to a bank, which acts as an intermediary. The bank then contacts the buyer to make the payment. Once payment is made, the bank releases the documents, allowing the buyer to take possession of the goods.
3. What’s the difference between CAD and other payment methods like Letter of Credit (L/C)?
While both CAD and L/C provide security in international transactions, they operate differently. An L/C is a bank’s promise to pay the seller on behalf of the buyer once certain conditions are met. CAD, on the other hand, involves direct payment upon receipt of shipping documents, without the bank’s assurance of payment in the event of non-compliance by the buyer.
4. Are there risks associated with CAD?
Yes, like all payment methods, CAD has its risks. For sellers, there’s the possibility that the buyer might not make the payment even after receiving the documents. For buyers, there’s the risk that the shipped goods might not align with what was agreed upon, and they have already made the payment.
5. Can CAD terms be modified?
Yes, the specific terms of a CAD agreement can be negotiated between the buyer and seller. This might include the type of documents required, the timing of payment, or the involvement of specific banks. As with all trade agreements, clear communication and mutual understanding are essential for successful CAD transactions.
