On this page
- What Are the Main Payment Terms in International Agro Trade?
- How Does a Letter of Credit (LC) Work?
- How Does Cash Against Documents (CAD) Work?
- How Does Telegraphic Transfer (TT) Work?
- LC vs CAD vs TT: How Do Risk and Cost Compare?
- Which Payment Term Suits Which Buyer-Seller Relationship?
- What Are the Common Mistakes in Documentary Payments?
- How Can You Discuss Payment Terms for Your Order with Elysium?
- Frequently asked questions
Cash against documents (CAD) is a payment term in which the exporter’s bank releases the shipping documents to the importer only after the importer pays. It sits between a telegraphic transfer (TT), where the buyer simply wires money, and a letter of credit (LC), where a bank promises to pay if the exporter presents compliant documents. Each term balances risk, cost and trust differently. This guide compares LC vs CAD vs TT for buyers and sellers of agricultural commodities.
Key takeaways
- An LC gives the strongest payment security for the exporter, but it is the most expensive and the most paperwork-heavy.
- CAD, a form of documentary collection, lets the buyer pay when the documents arrive, but no bank guarantees payment.
- TT is the simplest and cheapest term; the risk depends on whether payment is made before or after shipment.
- Many first orders use an LC or a part advance, and move to CAD or TT after a few clean shipments.
What Are the Main Payment Terms in International Agro Trade?
The main payment terms in agro trade are the letter of credit, documentary collection (including cash against documents), and telegraphic transfer, either in advance or after shipment. Most contracts use one of these, or a mix such as a 30% advance by TT with the balance against documents.
The choice matters because buyer and seller face opposite risks. The exporter fears shipping goods and not being paid. The importer fears paying and receiving the wrong goods, or none at all. Payment terms decide who carries that risk, and how much bank support each side gets. Payment terms are separate from Incoterms, which decide who pays freight and where the risk in the goods passes. See our guide to Incoterms types for that side of the contract.
How Does a Letter of Credit (LC) Work?
A letter of credit is a written promise by the buyer’s bank to pay the exporter, provided the exporter presents documents that comply exactly with the terms of the credit. Most LCs are issued under the ICC’s Uniform Customs and Practice for Documentary Credits, known as UCP 600. The usual steps are:
- The buyer and seller agree to pay by LC in the sales contract.
- The buyer asks its bank (the issuing bank) to open the LC in favour of the exporter.
- The LC is sent to the exporter through an advising bank in the exporter’s country.
- The exporter ships the goods and presents the documents, such as the bill of lading, invoice and certificates, to its bank.
- The banks check the documents. Under UCP 600, each bank has a maximum of five banking days after presentation to decide whether they comply.
- If they comply, the issuing bank pays, either at sight or at a later date, and releases the documents to the buyer.
An LC protects the buyer as well. The bank pays only against the documents the buyer asked for, so the buyer can require a pre-shipment inspection certificate, a lab report or a latest shipment date. But banks deal in documents, not goods. An LC does not prove that the goods match the contract, only that the documents do.
How Does Cash Against Documents (CAD) Work?
Under cash against documents, also called documents against payment (D/P), the exporter ships the goods and sends the original documents to the buyer’s bank through its own bank. The buyer’s bank hands over the documents, including the original bill of lading, only when the buyer pays. Without the bill of lading, the buyer cannot take delivery of the cargo.
CAD is a type of documentary collection, usually governed by the ICC’s Uniform Rules for Collections (URC 522). The banks act only as messengers. They do not check the documents in detail and do not promise payment. If the buyer refuses to pay, the exporter still controls the goods through the bill of lading, but it must then find a new buyer, ship the goods back or pay for storage at the destination port.
Bank charges for a collection are lower than for an LC, and the process is simpler. That makes CAD popular between parties who know each other, especially in regular commodity trades.
How Does Telegraphic Transfer (TT) Work?
A telegraphic transfer is a direct bank-to-bank wire of money from the buyer to the exporter, usually through the SWIFT network. It involves no checking of documents by banks. The key question is timing:
- Advance TT: the buyer pays before shipment. This is safest for the exporter and riskiest for the buyer.
- Part advance plus balance: the buyer pays, for example, 20–30% on contract and the balance against scanned documents before the originals are released.
- TT after arrival or on open account: the buyer pays after receiving the goods. This is safest for the buyer and riskiest for the exporter.
TT is fast and cheap, so it is common in long-standing relationships. Its weakness is fraud. Before you pay any advance, confirm the exporter’s bank details through a trusted channel, never only by email.
LC vs CAD vs TT: How Do Risk and Cost Compare?
The table compares the three terms from both sides of the trade.
| Factor | Letter of credit (LC) | Cash against documents (CAD) | Telegraphic transfer (TT) |
|---|---|---|---|
| Bank promise to pay | Yes, by the issuing bank | No | No |
| Exporter’s risk | Low, if documents comply | Medium: buyer may refuse the documents | Low (advance) to high (after arrival) |
| Importer’s risk | Low to medium: pays against documents, not goods | Medium: pays before inspecting goods | High (advance) to low (after arrival) |
| Bank charges | Highest | Moderate | Lowest |
| Paperwork | Heavy; strict compliance | Moderate | Light |
| Speed | Slowest | Medium | Fastest |
| Main rules | UCP 600 | URC 522 | Contract and bank terms |
| Best for | New relationships, large orders, risky markets | Known buyers, regular shipments | Trusted partners, small orders |
LC vs CAD vs TT for agro commodity trade.
Which Payment Term Suits Which Buyer-Seller Relationship?
The right payment term depends mostly on trust and history. As a rule of thumb:
- First order with a new supplier: an LC at sight, or a part advance by TT with the balance against documents. Both give each side some protection.
- Regular buyer with a good record: CAD through banks. It keeps costs down while the exporter still controls the documents.
- Long-term partners: TT against scanned documents, or open account terms where the exporter can insure the credit risk.
- Markets with currency controls or high country risk: a confirmed LC, where a bank in the exporter’s country adds its own promise to pay.
For agro buyers, documentary collection makes most sense when the product has a clear market price and the exporter is confident it could resell the goods if a buyer refused them. It suits standard grades of peanuts, sesame, spices or pulses better than custom private-label goods.
What Are the Common Mistakes in Documentary Payments?
Most problems in documentary payments come from small details. Watch for these mistakes:
- Opening an LC with terms the exporter cannot meet, such as an impossible shipment date or a certificate that does not exist.
- Spelling, weight or description differences between the LC, invoice and bill of lading, which lead to discrepancies and delays.
- Late presentation of documents after the LC’s deadline.
- Agreeing CAD without checking how long the goods can wait at the destination port if payment is delayed.
- Paying an advance to bank details received only by email.
Send a draft of the LC to the exporter before you open it. A five-minute check can save weeks of discrepancy fees and demurrage.
Related reading: 20ft vs 40ft Container: Which Size Suits Your Agri Cargo?.
How Can You Discuss Payment Terms for Your Order with Elysium?
Whether you prefer an LC, a TT advance or cash against documents, agree the term at the quotation stage, together with the Incoterm and the documents you need. Elysium Agri Corporation accepts advance TT, part advance with the balance against documents, CAD and irrevocable LCs at sight. We invoice in US dollars as standard, with euros or other currencies on request.
Our bank details never change by email. You can check our IEC, GSTIN and bank details on our verification page, and our registrations on the certificates page. Use the landed cost calculator to compare total costs, including bank charges, and the container load calculator to size your order.
Tell us the product, quantity, destination and your preferred payment term, and we will send a quote to match. Request a quote with your payment terms →
Frequently asked questions
What is the difference between LC and CAD in export trade?
Under a letter of credit, the buyer's bank promises to pay the exporter if compliant documents are presented. Under cash against documents, banks only pass the documents to the buyer when the buyer pays, and no bank promises payment. An LC gives the exporter more security, while CAD is cheaper and simpler to arrange.
Which payment term is safest for an exporter?
Full advance payment by telegraphic transfer is the safest for an exporter, because the money arrives before the goods leave. Among bank-supported terms, a confirmed irrevocable letter of credit at sight is the safest, since a bank promises to pay against compliant documents. Cash against documents and open account carry more exporter risk.
What does TT payment mean in international trade?
TT means telegraphic transfer, a direct electronic transfer of money from the buyer's bank to the exporter's bank, usually through SWIFT. It can be made in advance, partly in advance with the balance against documents, or after the goods arrive. It is fast and low-cost, but no bank checks documents or guarantees payment.
How does a letter of credit protect the buyer?
The bank pays only when the exporter presents the exact documents the buyer specified, such as a bill of lading, invoice, lab report or inspection certificate, by the agreed date. This makes sure the goods were shipped on time and documented as agreed. It does not prove the goods match the contract, so inspection terms matter.
When should agro buyers use documentary collection?
Documentary collection, such as cash against documents, suits buyers who already have a good track record with the exporter and want lower bank costs than an LC. It works best for standard grades with a clear market price, which the exporter could resell if needed. For a first order, an LC or part advance is more usual.
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