Money & Finance › Payments & money movement › Documentary collections: banks swap shipping papers for payment
Documents against payment (D/P): pay first, then get the goods
· Concept
Fact, law or dataA rule, statute, definition or measured number.
A documentary collection in which the buyer's bank releases the shipping papers, and so the goods, only after the buyer pays.
See it on the Money & Finance map →How it works
Story: a Busan electronics maker ships to a buyer in Los Angeles. Its bank sends the original bill of lading and a sight draft to the buyer's US bank, marked 'D/P'. The buyer pays the US bank, which hands over the documents, and the buyer collects the goods from the carrier. If the buyer refuses, the exporter still controls the cargo, but it is sitting at the port of Los Angeles running up storage charges and must be resold or shipped home.
Why it matters
It keeps the exporter in control until paid, at little cost, but only under a negotiable bill of lading; an air waybill gives no such control.
Facts, rules and data
ICC URC 522, banks' collection instruction forms, and the Commerce Department's Trade Finance Guide.
Debates and risks
How often buyers use a refusal to renegotiate the price once goods are stuck at their port is not tracked publicly.
Connections (2)
▸Documents against payment (D/P): pay first, then get the goods is the safer form of Documentary collections: banks swap shipping papers for paymentFact, law or data
The connection
D/P is the stricter form of collection: the importer must pay the full amount at sight before the bank hands over the documents, so the exporter keeps control of the goods until paid. It still carries no bank guarantee; the buyer can simply refuse to pay.
When and why
In collections worldwide under ICC URC 522; also called 'cash against documents'.
How we know
URC 522 and banks' collection instruction forms, which offer D/P and D/A as the two standard choices.
Debates and risks
How much protection D/P really gives when goods are perishable or custom-made, since reselling them may be impossible.
▸Documents against payment (D/P): pay first, then get the goods withholds until payment the Bills of lading: the shipping document that controls the goodsFact, law or data
The connection
The bank keeps the negotiable bill of lading until the importer pays, and the carrier releases cargo only to the holder of an original. That is the exporter's leverage. If the shipment moves under a sea or air waybill instead, the goods can be released without the bank, and D/P loses its point.
When and why
Ocean shipments from Asia to US ports; air shipments use waybills, so D/P rarely protects air cargo.
How we know
Carrier release rules, the federal Pomerene Act on negotiable bills, and trade-finance guides warning about waybills.
Debates and risks
Whether electronic bills of lading will give the same control as paper originals in every port and court.