What are risks of making air shipments when using documents against payment method?

Documents Against Payment (D/P) is a payment method used in international trade transactions.

This payment method has couple of alternative names such as documentary collections, cash against documents, CAD and documents against acceptance.

There are various advantages of using this payment method in export and import operations.

Some of the advantages of documentary collection payment method can be mentioned as follows:
  • Documentary collection payment method is easy. 
  • Documentary collection is relatively a cheap payment option comparing to letters of credit. 
  • Documentary collection is a fast international payment type comparing to letters of credit.

Despite all of these advantages stated above, documentary collection payment has couple of disadvantages, which have to be burdened by the exporters.

Payment Methods in International Trade

If you would like to be permanent and successful in international trade then you need to learn payment methods very well.

Profit margins in a typical foreign trade transaction is limited due to high competition but risks are high.

One mistake could lead to your bankruptcy.

Reasons why you need to know international payment methods:
  • Legal Issues: In international business your customer will be located in a different legal area. This makes almost impossible to recover your losses through legal ways. Once you make the payment as an importer you cannot get back to your money against a fraudulent exporter. On the other hand if you trust your buyer and make the shipment without having paid your chances of recovering your payment is very limited against a fraudulent importer. As a result you need to learn and practice well payment methods either you are an importer or an exporter. 
  • Commercial Issues: You cannot seal the deal every transaction with simple payments such as cash in advance or open account. You may have to use letters of credit or documentary collections as conditions dictates. The better you can use payment methods in international trade the more likely you can complete successful deals. 
  • Better Career Chances: Much of the sales stuff does not understand from complicated payment types especially sound usage of letters of credit is very rare. If you can learn and practice letters of credit you will be getting ahead of the competition for better job opportunities.