Legal Definitions - cash-against-documents sale

A cash-against-documents sale is a type of commercial transaction where a buyer agrees to pay for goods upon the presentation of specific shipping and title documents, rather than upon the physical delivery or inspection of the goods themselves. This method is commonly used, especially in international trade, to mitigate risk for both parties.

Typically, the seller ships the goods and then provides the buyer (or the buyer's bank) with documents such as a bill of lading (proof that the goods have been loaded for shipment), a commercial invoice, and an insurance certificate. The buyer then makes payment once these documents have been verified, which allows them to take possession of the goods upon their arrival.

Here are some examples illustrating a cash-against-documents sale:

• International Machinery Purchase: A construction company in Canada orders specialized heavy machinery from a manufacturer in Germany. To ensure both parties are protected, they agree to a cash-against-documents sale. The German manufacturer ships the machinery and then sends the bill of lading, commercial invoice, and insurance certificate to the Canadian company's bank. Once the Canadian bank verifies that these documents are in order, it releases the payment to the German manufacturer. The Canadian company then uses these documents to claim the machinery when it arrives at the port in Canada.

  This illustrates a cash-against-documents sale because the Canadian company makes payment based on the official shipping documents, confirming the machinery has been dispatched and is insured, rather than waiting for the physical arrival and inspection of the equipment.

• Bulk Agricultural Commodity Sale: A large food processing plant in Texas purchases a substantial volume of corn from a supplier in Iowa. Given the quantity and distance, they opt for a cash-against-documents arrangement. The Iowa supplier loads the corn onto freight trains and obtains a railway bill of lading. This document, along with the sales invoice, is then sent to the Texas plant's bank. Upon the bank's confirmation of these documents, the processing plant authorizes payment to the Iowa supplier. With the bill of lading, the plant can then take possession of the corn once it reaches its destination in Texas.

  This example demonstrates a cash-against-documents sale because the Texas plant pays for the corn based on the shipping documents that confirm the commodity has been sent, providing assurance before the physical goods are received.

• High-Value Collectible Transaction: An antique dealer in New York purchases a rare, valuable vintage car from a private seller in Italy. Due to the car's high value and the complexities of international shipping, they agree to a cash-against-documents sale. The Italian seller arranges for the car's secure transport and obtains a certificate of title, a bill of lading from the shipping company, and an insurance policy. These documents are then sent to the New York dealer's bank. Once the bank verifies the authenticity and correctness of these documents, the dealer's payment is released to the Italian seller. The dealer then uses these documents to claim the car upon its secure arrival in New York.

  Here, the transaction is a cash-against-documents sale because the antique dealer makes payment based on the official documents proving ownership, shipment, and insurance of the valuable car, ensuring the transaction is secure before the physical vehicle is in their possession.