Procurement Glossary
Payment against documents (CAD): Secure payment processing in international trade
November 19, 2025
Payment against documents (CAD) is a proven payment method in international trade that offers security to both buyers and sellers. This method makes it possible to minimize payment risks and at the same time guarantee the flow of goods. Find out below what exactly CAD means, which methods are available and how you can use this form of payment optimally in your procurement strategy.
Key Facts
- CAD stands for "Cash Against Documents" and requires the transfer of shipping documents against immediate payment
- Offers greater security than prepayment for the buyer and more protection than an open invoice for the seller
- Mainly used in international trade between established business partners
- Banks act as neutral intermediaries and check that the documents are complete
- Significantly reduces payment default risks compared to unsecured forms of payment
Contents
Definition: Payment against documents (CAD) - meaning and purpose
Payment against documents is a documentary payment procedure in which the shipping documents are only handed over to the buyer after payment has been made.
Basic mode of operation
In the case of CAD, the seller hands over the shipping documents to his bank, which forwards them to the buyer's bank. The buyer receives the documents only against immediate payment or acceptance of a bill of exchange. This procedure ensures that the seller receives payment before the buyer has access to the goods.
CAD vs. other forms of payment
Compared to prepayment, CAD offers the buyer more security, as payment is only made when the document is presented. Compared to open invoices, it significantly reduces the risk of default for the seller. Unlike bank guarantees, no additional collateral is required.
Importance of CAD in Procurement
For buyers, CAD is a balanced solution that combines security and flexibility. It enables controlled payment processing without the disadvantages of full prepayment and supports the development of trusting supplier relationships.
Methods and procedures
CAD is implemented using standardized banking procedures that ensure secure and efficient processing.
Documentary collection procedure
Classic documentary collection forms the basis for CAD transactions. The exporter submits a collection order to his bank together with the shipping documents. The bank forwards these to the correspondent bank in the importing country, which only hands over the documents to the importer against payment.
D/P and D/A modalities
CAD distinguishes between "Documents against Payment" (D/P) and "Documents against Acceptance" (D/A). With D/P, payment is made immediately, whereas with D/A, the buyer accepts a bill of exchange and pays at a later date. The choice of modality significantly influences the payment plan.
Digital CAD processes
Modern technologies are increasingly enabling digital CAD processing. Electronic documents and automated checking procedures speed up the process and reduce processing times. This also supports integration into supply chain finance solutions.
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Key figures for controlling payments against documents (CAD)
Effective KPIs enable the monitoring and optimization of CAD processes and the evaluation of their impact on procurement performance.
Process efficiency key figures
The average processing time from document submission to payment measures the efficiency of the CAD process. Document error rates show potential for improvement in preparation. A target of less than 5% error rate and a maximum processing time of 3 bank working days is considered best practice.
Cost analysis metrics
Bank fees as a percentage of the transaction volume evaluate the cost efficiency of different CAD providers. The total costs per transaction, including internal processing costs, enable comparisons with alternative forms of payment. Discount losses due to late payments should be minimized.
Risk assessment indicators
The number of disputed transactions per quarter shows the quality of supplier relationships and documentation processes. Currency losses due to unfavorable exchange rate developments should be limited through appropriate exchange rate fixing.
Risk factors and controls for payments against documents (CAD)
Although CAD offers security, there are specific risks that must be minimized by suitable control mechanisms.
Document risks
Incomplete or incorrect documents can lead to delays or refusals to pay. Banks only check the formal correctness, not the content of the goods. Buyers bear the risk of inferior goods or goods that do not meet specifications. Precise document requirements and quality checks are essential.
Currency and country risks
Exchange rate fluctuations can have a significant impact on transaction costs. Exchange rate fixing or exchange rate clauses offer protection against unexpected exchange rate movements. Political instability or exchange controls in the exporting country can delay or prevent payments.
Liquidity management
CAD requires immediate payment upon submission of documents, which makes liquidity planning more difficult. Unforeseen payment dates can lead to bottlenecks. Close coordination with the payment plan and sufficient credit lines are necessary.
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Practical example
A German mechanical engineering company purchases special components worth EUR 250,000 from a Chinese supplier. Due to the distance and limited business relationship, both parties agree on CAD as the form of payment. After shipment, the supplier hands over the documents (invoice, packing list, certificate of origin, insurance policy) to his bank in Shanghai. The bank forwards the documents to the German correspondent bank. The buyer receives the documents only against immediate payment and can use them to clear the goods through customs.
- Reduced risk for both parties compared to prepayment or open invoice
- Clear document requirements prevent misunderstandings
- Bank fees of approx. 0.3% of the transaction value are calculable
Current developments and effects
Digitalization and new technologies are fundamentally changing traditional CAD processes and creating new opportunities to increase efficiency.
Blockchain integration
Blockchain technology is revolutionizing document processing for CAD transactions. Smart contracts are automating payment solutions and reducing manual verification processes. This development significantly increases the transparency and traceability of all transaction steps.
AI-supported document verification
Artificial intelligence optimizes document validation through automatic detection of discrepancies and completeness checks. Machine learning algorithms learn from historical transactions and continuously improve the quality of checks. This reduces processing times and minimizes human error.
Integration in fintech solutions
Modern fintech platforms integrate CAD into comprehensive supply chain finance ecosystems. This development enables seamless transitions between different forms of financing and supports dynamic discounting strategies.
Conclusion
Payment against documents (CAD) is a proven and balanced form of payment for international trade that offers both buyers and sellers adequate security. The digitalization and integration of AI technologies are continuously improving the efficiency and transparency of processes. For buyers, CAD is a cost-effective alternative to letters of credit, especially for established supplier relationships, but requires careful document preparation and liquidity planning. The strategic use of CAD can minimize payment risks and at the same time increase flexibility in procurement.
FAQ
What is the difference between CAD and a letter of credit?
With CAD there is no guarantee of payment from the bank, whereas a letter of credit is an irrevocable promise of payment. CAD is cheaper, but offers less security for the seller. Letters of credit require a credit line from the buyer, whereas CAD only requires sufficient liquidity at the time of payment.
Which documents are required for CAD?
Standard documents include commercial invoice, packing list, transportation documents and proof of insurance. Depending on the goods, certificates of origin, quality certificates or health certificates may be required. The exact requirements are specified in the purchase contract and must be met in full.
How long does a CAD transaction take?
Typically, CAD transactions require 3-7 banking days from document submission to payment. The duration depends on the efficiency of the banks involved and the completeness of the documents. Digital processes can reduce the processing time to 1-2 days.
What are the costs of CAD?
Bank fees are typically between 0.2% and 0.5% of the transaction value, plus fixed processing fees of EUR 50-150 per transaction. Additional costs may be incurred for document verification, courier delivery or amendments. These costs should be taken into account in the calculation.
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