THE PRO'S AND CON'S OF CAD (Cash Against Delivery)
Post 1 of 5
Here are the pros and cons for a COD (it also means CAD) term of payment:
Advantages to the seller are as follows:
(a) Goods are in his effective (note the word 'effective') possession till drawee/buyer/importer pays for them;
(b) Since the bills are on D/P basis, no time is wasted. The bills are presented to the buyer at the first opportunity. The seller comes to know very early whether the drawee would pay or not. Warning signs, if at all they are to come, appear very early on his radar.
(c) The seller has a very experienced, reliable and professional banking system to work for him, acting on his precise instructions. Changes or deviations must have his prior approval.
(d) There are a clear and a definite set of rules (URC 522) to guide the collection process, and the expertise of the ICC to back it up. The entire transaction remains transparent to all parties concerned.
Disadvantages to the seller:
(a) There is no guarantee that the buyer will take delivery of the consignment. No agreement or contract can force a buyer to accept the consignment.
(b) If buyer wishes to play truant and delays taking delivery, it may lead to demurrages and other incidental costs, compromising seller’s bargaining power.
(c) Legal remedy for breach of contract can be long and a costly process.
(d) In case of failure of the buyer, the seller would either have to pay the cost of carriage for return of the goods, or find an alternate buyer at the same or a new destination – leading to additional costs.
Disadvantages to the buyer:
(a) Unless he has paid for the goods, he is unable to take possession and satisfy himself as to the correctness in terms of quality and quantity.
(b) Once payment has been made, he cannot reclaim the funds. Refund is possible only with the consent of the seller.
Advantages to the seller are as follows:
(a) Goods are in his effective (note the word 'effective') possession till drawee/buyer/importer pays for them;
(b) Since the bills are on D/P basis, no time is wasted. The bills are presented to the buyer at the first opportunity. The seller comes to know very early whether the drawee would pay or not. Warning signs, if at all they are to come, appear very early on his radar.
(c) The seller has a very experienced, reliable and professional banking system to work for him, acting on his precise instructions. Changes or deviations must have his prior approval.
(d) There are a clear and a definite set of rules (URC 522) to guide the collection process, and the expertise of the ICC to back it up. The entire transaction remains transparent to all parties concerned.
Disadvantages to the seller:
(a) There is no guarantee that the buyer will take delivery of the consignment. No agreement or contract can force a buyer to accept the consignment.
(b) If buyer wishes to play truant and delays taking delivery, it may lead to demurrages and other incidental costs, compromising seller’s bargaining power.
(c) Legal remedy for breach of contract can be long and a costly process.
(d) In case of failure of the buyer, the seller would either have to pay the cost of carriage for return of the goods, or find an alternate buyer at the same or a new destination – leading to additional costs.
Disadvantages to the buyer:
(a) Unless he has paid for the goods, he is unable to take possession and satisfy himself as to the correctness in terms of quality and quantity.
(b) Once payment has been made, he cannot reclaim the funds. Refund is possible only with the consent of the seller.
24 Aug 2007 19:21
Post 2 of 5
How if a COD/CAD terms used without any sub prepaid D/P ??.
Since the buyer also didn't trust any prepaid payment without piece of binding contract and consignment, yet both parties doesn't trust each other. Even a piece of signed contract by both parties will be too expensive when something goes wrong. like the buyer refuse to accept the goods by the sudden or doesn't pay at all but he takes the goods. debt collector agency will add more cost. a return shipping cost even more.
The risk will be all on seller's. this gone worst if the trade was abroad and has variety of trading law or any jurisdiction among two sides. each side doesn't have power to court the other. except if you have a big trusted company and fortune.
I think this term a bit one sided. the consignee doesn't take the risk as much as the consignor. i rather not to choose this.![[em20]](http://img.alibaba.com/images/eng/style/icon/emoticons_victory.gif)
Since the buyer also didn't trust any prepaid payment without piece of binding contract and consignment, yet both parties doesn't trust each other. Even a piece of signed contract by both parties will be too expensive when something goes wrong. like the buyer refuse to accept the goods by the sudden or doesn't pay at all but he takes the goods. debt collector agency will add more cost. a return shipping cost even more.
The risk will be all on seller's. this gone worst if the trade was abroad and has variety of trading law or any jurisdiction among two sides. each side doesn't have power to court the other. except if you have a big trusted company and fortune.
I think this term a bit one sided. the consignee doesn't take the risk as much as the consignor. i rather not to choose this.
29 Aug 2007 16:05
Post 3 of 5
Replying to [BUMshells]:
I think thatyou have confused a bit between CAD and DA bills. CAD must always be on * basis. CAD means cash payment must be made before the bank delivers the transport documents (BL, AWB etc.)
DA is where the buyer gets hold of the goods before he pays. In such cases, what you say about loss of goods would apply.
That's why, CAD (also called DP) is safer than DA bills.
Also remember, the presenting bank safeguards the interest of the seller. It will only follow instructions. Hence seller remains safe.
I think thatyou have confused a bit between CAD and DA bills. CAD must always be on * basis. CAD means cash payment must be made before the bank delivers the transport documents (BL, AWB etc.)
DA is where the buyer gets hold of the goods before he pays. In such cases, what you say about loss of goods would apply.
That's why, CAD (also called DP) is safer than DA bills.
Also remember, the presenting bank safeguards the interest of the seller. It will only follow instructions. Hence seller remains safe.
30 Aug 2007 22:19
Post 4 of 5
Replying to [Catalyst]:
First, i want to apologize if i have done any mistakes.
Yes, perhaps i have misunderstood between CAD and the recent mentioned DA bills. You are absolutely right. the bank only take action based on seller's instruction. this is as the safety guarantee for the seller.
By the way, is the CAD used by most of payment on trading? because, if it is, then i may presume that CAD quiet liable to be used.
And how much part of D/P in percentage is usually acceptable by global.
And what is the condition to CAD can be used as for more safe rather than other methods? since some may say L/C is the one which more safe, even take more cost to it too.
How can we assure the costumer trust for a prepaid or D/P. buyers also won't take risk to spend their fund for dis liable seller. this has become a basic marketing problem. how they would believe seller's company registration number that easy (if their business relationship is new). CAD method need a bank account only isn't it? everyone can fake their IDs. since both parties stand between thousand miles across the ocean.
Is there any of your articles mentioning about DA? if DA bills it self worthy enough to be more discussed. maybe i can draw a line considering both CAD and DA bills. Their Pros and Cons. Or else, we should consider for L/C.
Thank you for your attention.
First, i want to apologize if i have done any mistakes.
Yes, perhaps i have misunderstood between CAD and the recent mentioned DA bills. You are absolutely right. the bank only take action based on seller's instruction. this is as the safety guarantee for the seller.
By the way, is the CAD used by most of payment on trading? because, if it is, then i may presume that CAD quiet liable to be used.
And how much part of D/P in percentage is usually acceptable by global.
And what is the condition to CAD can be used as for more safe rather than other methods? since some may say L/C is the one which more safe, even take more cost to it too.
How can we assure the costumer trust for a prepaid or D/P. buyers also won't take risk to spend their fund for dis liable seller. this has become a basic marketing problem. how they would believe seller's company registration number that easy (if their business relationship is new). CAD method need a bank account only isn't it? everyone can fake their IDs. since both parties stand between thousand miles across the ocean.
Is there any of your articles mentioning about DA? if DA bills it self worthy enough to be more discussed. maybe i can draw a line considering both CAD and DA bills. Their Pros and Cons. Or else, we should consider for L/C.
Thank you for your attention.
03 Sep 2007 02:14
Post 5 of 5
Replying to [BUMshells]:
Let me try to address each question in order:
(1) Question: “Is the CAD used by most of payment on trading? because, if it is, then i may presume that CAD quiet liable to be used.”
Response: CAD is *one* of the methods used. There are several ways to settle dues between a seller and a buyer. CAD is only one of them. The choice depends on the relationship between the two parties.
(2) Question: “And what is the condition to CAD can be used as for more safe rather than other methods? since some may say L/C is the one which more safe, even take more cost to it too.”
Response: Small quantities, samples etc. can be sent by post parcel or VPP (value payable post). For the seller, CAD is safer than DA bills. LC is even more safe; but yes, it would cost more. If you are reasonably sure that the goods will not be refused by the buyer (and therefore, you won’t have trouble in shipping the goods back, or fining another buyer) and want to save on bank charges, CAD/COD is a decent option.
(3) Question: “CAD method need a bank account only isn't it? everyone can fake their IDs. since both parties stand between thousand miles across the ocean.”
Response: That is exactly where the risks lie - the distance, unknown parties. Yes, CAD needs a bank account. Reputed banks would not open account without verifying customer IDs. Thus, there is a degree of safety there with bank accounts. Suggest, use an agent or your chamber of commerce to locate/identify reliable parties.
(4) Question: “Is there any of your articles mentioning about DA? if DA bills it self worthy enough to be more discussed. maybe i can draw a line considering both CAD and DA bills. Their Pros and Cons. Or else, we should consider for L/C.”
Response: Please search this forum for info on DA bills. For new contacts, better to start with sight LCs, then usance LCs, then gradually change over to CAD/COD. Initially, with new parties/buyers, DA is avoidable being more risky.
Let me try to address each question in order:
(1) Question: “Is the CAD used by most of payment on trading? because, if it is, then i may presume that CAD quiet liable to be used.”
Response: CAD is *one* of the methods used. There are several ways to settle dues between a seller and a buyer. CAD is only one of them. The choice depends on the relationship between the two parties.
(2) Question: “And what is the condition to CAD can be used as for more safe rather than other methods? since some may say L/C is the one which more safe, even take more cost to it too.”
Response: Small quantities, samples etc. can be sent by post parcel or VPP (value payable post). For the seller, CAD is safer than DA bills. LC is even more safe; but yes, it would cost more. If you are reasonably sure that the goods will not be refused by the buyer (and therefore, you won’t have trouble in shipping the goods back, or fining another buyer) and want to save on bank charges, CAD/COD is a decent option.
(3) Question: “CAD method need a bank account only isn't it? everyone can fake their IDs. since both parties stand between thousand miles across the ocean.”
Response: That is exactly where the risks lie - the distance, unknown parties. Yes, CAD needs a bank account. Reputed banks would not open account without verifying customer IDs. Thus, there is a degree of safety there with bank accounts. Suggest, use an agent or your chamber of commerce to locate/identify reliable parties.
(4) Question: “Is there any of your articles mentioning about DA? if DA bills it self worthy enough to be more discussed. maybe i can draw a line considering both CAD and DA bills. Their Pros and Cons. Or else, we should consider for L/C.”
Response: Please search this forum for info on DA bills. For new contacts, better to start with sight LCs, then usance LCs, then gradually change over to CAD/COD. Initially, with new parties/buyers, DA is avoidable being more risky.
10 Sep 2007 01:14
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