Documents against Payment (D/P): A Comprehensive Guide 2024

Explore the world of international trade finance and learn the basics of Documents against Payment (D/P), a popular approach for settling cross-border transactions. This comprehensive book will enlighten you on the D/P process, from its beginnings to its practical uses, allowing you to make educated decisions and optimize your international trade processes.

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Documents against Payment (D/P) are an important part of trade finance in the dynamic world of international trade, allowing the exchange of commodities and services across borders. The exporter releases shipping paperwork to the importer’s bank, which then holds them until the importer makes the agreed-upon payment.

What are Documents against Payment (D/P)?

Documents against Payment (D/P) is a trade finance technique in which the exporter asks their bank to deliver shipping documents to the importer’s bank in exchange for payment. The importer’s bank maintains these documents until the importer makes the agreed-upon payment, guaranteeing that the products are only released when payment is received.

Example of (D/P) Click here

How does Documents against Payment (D/P) work?

The D/P process typically involves the following steps:

  1. Contract of Sale: The exporter and importer enter into a contract of sale, outlining the terms of the transaction, including the goods to be shipped, the agreed-upon price, and the payment terms.
  2. Shipment and Documentation: The exporter ships the goods and prepares the necessary shipping documents, such as a commercial invoice, packing list, and bill of lading.
  3. Presentation of Documents: The exporter presents the shipping documents to their bank, along with instructions to release them to the importer’s bank against payment.
  4. Release of Documents: The exporter’s bank sends the documents to the importer’s bank, who notifies the importer of their arrival.
  5. Payment: The importer makes the agreed-upon payment to their bank.
  6. Release of Goods: Upon receiving payment, the importer’s bank releases the shipping documents to the importer, allowing them to clear customs and take possession of the goods.

Advantages of Documents against Payment (D/P)

D/P offers several advantages for both exporters and importers:

For Exporters:

  • Reduced Payment Risk: Payment is made before the goods are released, minimizing the risk of non-payment.
  • Improved Cash Flow: Facilitates early payment, enhancing cash flow and financial stability.
  • Retention of Control: The exporter retains control of the goods until payment is received.

For Importers:

  • Goods Inspection: Allows inspection of the goods before making payment.
  • Negotiation Flexibility: Provides the opportunity to negotiate payment terms with the exporter.
  • Reduced Banking Costs: Typically less expensive than other trade finance methods, such as Letters of Credit (LCs).

Disadvantages of Documents against Payment (D/P)

D/P also has some drawbacks:

  • Payment Delays: Payment may be delayed if the importer is unable to secure financing promptly.
  • Risk of Non-Payment: There is a risk that the importer may not make payment, leaving the exporter with no recourse.
  • Limited Credit Protection: D/P does not provide the same level of credit protection as other trade finance methods, such as LCs.

FAQs on Documents against Payment (D/P):

  1. Q: What is Documents against Payment (D/P)?

    Ans: D/P is a trade term indicating that the release of shipping and title documents by the seller’s bank to the buyer will only occur upon payment by the buyer.

  2. Q: What are the different types of Documents against Payment?

    Ans: There are two main types of D/P:
    1. D/P at Sight: Payment is required immediately upon presentation of the shipping documents.
    2. D/P at Usance: Payment is due at a predetermined date after the presentation of the shipping documents.

  3. Q: What are the key considerations for using Documents against Payment?

    Ans: Carefully evaluate the creditworthiness of the importer.
    Ensure accurate and timely preparation of shipping documents.
    Communicate effectively with your bank throughout the D/P process.
    Consider using D/P in conjunction with other trade finance instruments, such as credit insurance, to mitigate risks.

  4. Q: How do Documents against Payment work?

    Ans: The seller ships the goods and provides the buyer with the necessary shipping documents. The buyer must make the payment to the seller’s bank to receive these documents and take possession of the goods.

  5. Q: What documents are typically involved in a D/P transaction?

    Ans: Common documents include the commercial invoice, bill of lading, packing list, and any other documents agreed upon between the buyer and seller.

  6. Q: Who holds the documents in a D/P transaction?

    Ans: In a D/P transaction, the documents are typically held by the seller’s bank until the buyer makes the payment. Once payment is received, the documents are released to the buyer.

  7. Q: What is the role of the banks in a D/P transaction?

    Ans: The seller’s bank acts as a custodian of the shipping documents and ensures they are only released to the buyer upon receipt of payment. The buyer’s bank may facilitate the payment process.

  8. Q: Is D/P a secure method of payment for the seller?

    Ans: D/P provides a level of security for the seller, as they retain control of the documents until payment is made. However, the buyer needs to be confident that the documents will be released promptly upon payment.

  9. Q: Can D/P transactions be used in international trade?

    Ans: Yes, D/P is commonly used in international trade, especially when the parties are not well-acquainted, and there is a need for security in the payment process.

  10. Q: What are the risks for the buyer in a D/P transaction?

    Ans: The primary risk for the buyer is that they need to make the payment before receiving the shipping documents, which could potentially lead to complications if the goods do not meet expectations.

  11. Q: Can D/P transactions be negotiated between the buyer and seller?

    Ans: Yes, the terms of a D/P transaction can be negotiated between the buyer and the seller, including the specific documents required and the time frame for payment.

  12. Q: Is D/P similar to Cash on Delivery (COD)?

    Ans: D/P and COD are similar in that payment is made upon the delivery of goods. However, in D/P, payment is typically made through a bank, while COD involves direct payment upon delivery to the carrier.

  13. Q: Can the buyer inspect the goods before making payment in a D/P transaction?

    Ans: The ability of the buyer to inspect the goods before making payment depends on the terms agreed upon between the buyer and the seller. It’s important to clearly outline inspection procedures in the sales contract.


Documents against Payment (D/P) is a tried-and-true way of navigating the complex environment of international trade. Secure your company transactions, educate your employees, and succeed in an ever-changing global environment.

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