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What Is Cash Against Documents (CAD) Financing?

Last Modified : Jun 26, 2024

Fact-checked by: Bruce Sayer

Cash against document financing (CAD financing) is a method in which an importer pays for goods before receiving them. To ensure the satisfaction of the transaction from both parties, a third party will accept the shipping and title documents for the exported goods. There is no release of the product to the buyer – or importer – until the completion of payment. This situation is similar to real estate transactions, where an uninterested party holds money in escrow until the transfer of the home’s title is complete.

CAD Financing is beneficial for both parties. The exporter has a guarantee of the payment for the goods shipped and the importer can be sure that they receive the products that were purchased. This method eliminates business transaction issues across borders.

Is cash against documents financing another term for trade finance?

Yes, “Cash Against Documents” (CAD) financing is a specific type of trade finance. Trade finance encompasses a wide range of financial products that are used by businesses to facilitate international and domestic trade transactions. CAD financing is a method where payment for goods is made through the exchange of certain documents.

In a CAD transaction, the seller ships the goods and submits the shipping documents to their bank, which then forwards these documents to the buyer’s bank. The buyer is required to pay the presenting bank before gaining access to these documents, which are needed to take possession of the goods. This ensures that the seller gets paid (since the buyer cannot access the goods without paying for the documents) and the buyer has assurance that the goods have been shipped (since the documents are typically required to claim the goods).

While CAD financing falls under the umbrella of trade finance, trade finance itself includes various other instruments and methods, such as letters of credit, bank guarantees, export financing, import financing, and supply chain financing, among others. Each of these serves different needs and scenarios in the facilitation of trade, with CAD being preferred for its simplicity and lower cost compared to some of the more complex instruments like letters of credit.

What is the CAD process?

 The exporter or seller typically initiates the CAD transaction. Once the order from the international buyer is accepted, they will prepare the necessary shipping documents required by the country of origin and country of destination. A standard form that is part of these documents is an Export Collection Form. An Export Collection Form, a bill of exchange and other shipping documents are forwarded to the financial institution that is used by the exporter.

After sending the documents, the goods are held with the provision that they cannot be released to the importer until the designated payment is made to the financial institution. The transaction is not complete, and the seller retains ownership of the entire shipment until the financial institution receives the payment.

What makes this form of international financing advantageous to the buyer is that they can inspect the goods before transferring the funds to the financial institution. Meaning, CAD transactions protect them by ensuring that the products are of the quality promised and in the quantity that was requested.

After approving the shipment, the buyer pays the financial institution the pre-arranged amount for the consignment and the financial institution sends the funds to the exporter while the importer receives the shipping paperwork and title to the goods.

Who benefits from CAD financing transactions?

International trade can be tricky business on both sides of the border. Straight credit is ideal but usually impossible to obtain when trying to purchase goods from an overseas exporter. CAD financing is the solution that helps ensure that exporters get their money on time. At the same time, this also allows importers to get the goods that they need for their business.

Comparing cash documents vs. letters of credit

Letters of credit are another financing method to help facilitate international trade deals. As with CAD financing, letters of credit benefit the exporter who is unwilling to provide open trade credit. Typically, this is because they are unfamiliar with the importer or the buyer does not have a credible credit history.

The actual letter of credit is a formal letter from the importer’s bank, promising their financial support to the buyer. A letter of credit gives the exporter the right to demand that the bank will pay for the shipment if the buyer does not pay. A letter of credit can be a one-time purchase, or the buyer could establish a line of credit with the financial provider that allows them to make regular purchases from the same exporter.

The seller gets the most advantage from letters of credit, as their payment is virtually guaranteed unless there is a severe breach of the agreement they have made with the importer. For the buyer, this method affects their line of credit and credit score. It potentially interferes with their ability to deal with other vendors or take out business loans to increase their productivity. For some who do not have a stellar credit score, the bank may even insist on a cash deposit to secure the amount listed on the letter of credit.

What are the cash against documents terms?

The terms and conditions for a successful CAD transaction are straightforward. The exporter prepares the documents for the shipment once the buyer places the order. The company then forwards these documents to a financial institution facilitating the transaction. The factor will hold the document until the shipment arrives, and the buyer makes the payment of the goods. Upon receiving the payment, the documents are given to the importer, while the exporter receives the funds.

Even though a third party is holding the shipping documents, the exporter retains ownership of the goods until the transfer of funds. The importer cannot take ownership of the property in the shipment until they have the title and shipping documents.

Who pays for a CAD transaction?

The financial institution that helps to facilitate this type of transaction charges a small fee for the service. Since both parties benefit from a CAD transaction, it is not uncommon to see them split the cost. If it is not split, then the party responsible for the fee as per the original agreement is the one who pays the fee. Because of the complexities involved in international trade, and the protection that CAD transactions provide for both sides of the transaction, the cost paid to the financial institution who acts as the intermediary is well worth the expense.

Are there any risks in a CAD transaction?

Although a CAD transaction does eliminate most of the risk involved in international trade for both parties, it is more advantageous for the importer — especially when compared to letters of credit. A CAD transaction is less expensive and does not have any effect on the importer’s available credit. The seller still assumes some risk in that the buyer could refuse the delivery. In this event, the exporter would then have to absorb the additional cost. Such costs would cover having to return the goods to them.

What to look for in a CAD transaction funding company

While some banks do provide CAD services, they may charge higher fees than a private company. They may not have the experience and knowledge required to handle this type of international transaction. These are complex transactions that require a level of expertise that many banks do not have. Funding companies deal with this type of transaction daily. They are better equipped to handle the complex paperwork involved. Plus, they have gained experience in international import and export that will prove invaluable in ensuring successful CAD transactions.

For more information about how CAD financing can simplify your working capital needs, visit


In conclusion, Cash Against Documents (CAD) financing stands as a pivotal mechanism within the broader spectrum of trade finance, offering a streamlined and secure method for conducting international trade transactions. By tying the payment process directly to the exchange of crucial shipping documents, CAD minimizes the risk for both sellers and buyers, ensuring that sellers receive prompt payment and buyers are assured of the goods’ shipment. This financing method is particularly appealing for its simplicity and the financial security it provides, making it a preferred choice for businesses looking to optimize their trade operations without the complexities of more involved financial instruments. As global trade continues to evolve, CAD financing remains a cornerstone strategy, facilitating smoother and more reliable commercial exchanges across borders.


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