What does Documents Against Payment (D/P) mean?

In international trade, documentation plays a crucial role in ensuring the seamless transfer of goods and payments. Once a shipment is underway, the exporter submits a set of documents to their bank (the remitting bank) which the importer needs to receive in order to release the shipment from customs. This set of documents includes a bill of exchange or draft – an important document containing key details like invoice amount, time of payment, bank details, etc. This draft is drawn up by the exporter, and is designed for payment or acceptance by the importer.

A D/P transaction utilizes a sight draft, which requires payment on demand. This means that the importer is required to settle the payment as soon as they receive the draft, in exchange for the documents that will allow them to take possession of the goods. If the importer is unable to pay, the exporter has the right to recover the goods and documents.

A D/P transaction is different from a Documents Against Acceptance (D/A) transaction which utilizes a time or term draft. In this case, the documents are released to the importer after they accept and sign a draft that legally binds them to complete payment by a specific date. This allows the importer to access the shipment without having to settle the payment immediately¹.

The steps involved in a D/P transaction are as follows²:

Every country has its own set of regulations concerning what can and cannot be shipped across its borders. Before packing your goods, familiarize yourself with prohibited goods to ensure smooth customs clearance. Some of the following products are under prohibited category to ship to the UK³:
• Illegal drugs
• Animal products not fit for human consumption
• Counterfeit currency or banknotes
• Toxic and hazardous materials
• Obscene material
• Tobacco and alcohol

D/P transactions have the following advantages³:

D/P transactions have the following disadvantages⁴:

The primary distinction between D/P and D/A transactions lies in the timing of payment. In a D/P transaction, the importer has to make the payment immediately, on sight, before receiving the documents required to obtain the shipment.

On the other hand, in a D/A transaction, the importer gains access to the documents after signing a draft that guarantees payment by a mutually agreed-upon later date. This type of transaction is effectively a credit arrangement – the importer gains access to the documents and the goods, and is allowed to settle the payment by a specified future date⁵.

Like every payment method, D/P transactions also have their own benefits and limitations. It offers enhanced security for sellers and acts as a hedge against non-payment, but it can also create challenges for exporters if the importer is unable to pay. For Indian businesses entering global trade, especially those venturing into e-commerce exports, a nuanced understanding of payment methods is crucial. As the e-commerce exports sector in India continues to grow, Indian exporters need to make confident and informed decisions to launch their brands into global markets.