In payment against documents, the exporter submits the invoice and the shipping documents to be sent to the importer’s bank through their own bank. The collection bank delivers the documents to the importer after making the payment to the remittance bank.
Here, the risky issue for the exporter is the possibility of the importer not accepting the goods (for a certain reason or completely arbitrarily) and not making the payment. Or, some malicious importers may demand discounts of up to 50% on the goods you send, by finding various excuses.
Imagine that you are shipping a container of goods to the USA. Let’s assume that you cover export costs, shipping costs plus you wait 30-40 days for the goods to be delivered. While waiting for the payment, the customer gave up buying the goods at that moment and turned the goods down. Or they looked at the goods and found a ridiculous excuse. With an excuse, they said they would only get the goods if you made a discount.
If you take into account the cost of returning the goods, which you will have to bear again, the cost of customs (if you cannot forward it to another customer) and the additional 30-40 days you will have to wait, you will have to give the customer a discount. In other words, the importer has cornered you.
To avoid such a thing, definitely request a deposit upfront for Cash Against Document payments. Calculate the possible loss incase the buyer does not accept the goods and demand 30-50% of the cost of the goods in advance.
Another issue regarding Cash Against Documents is that in current trade transactions, this business is not always done by using a bank in between. In fact, many times the bank is not involved at all.
In general, the way of using Cash Against Documents is as follows; As an exporter, you take your down payment, load the goods and do not send the other party the necessary documents such as bill of lading and so on. You send a copy of the documents to the importer by e-mail as proof that you have loaded the goods. When the customer receives the goods (or before the goods arrive, depending on your agreement), they pay you the remaining balance, and you send the documents to them.