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

Documents against payment is a payment method where documents to receive possession of goods are made available to the importer in return for payment. Learn more this blog.
What is Documents Against Payment (D/P)
In international trade transactions, the exporter and the importer need to agree upon a payment method that benefits both parties involved. An exporter might be hesitant to release goods without receiving payment, whereas the importer might want to confirm the successful delivery of the shipment before paying. Documents Against Payment (D/P) is one of several payment methods that traders can employ to facilitate smooth trade transactions across borders. In this blog post, we will discuss what a D/P transaction is, how it works, and its various advantages and disadvantages.

What is a Documents Against Payment (D/P) transaction?

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.

How does Documents Against Payment work?

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

Step 1: Sales contract

The exporter and importer define the terms of payment and sign a contract outlining these terms.

Step 2: Items dispatch

The exporter dispatches the shipment based on the terms of the contract.

Step 3: Submission of export documents

After the goods have been shipped, the exporter submits a set of export documents to their bank, known as the remitting bank. These include a bill of exchange (at sight), bill of lading, commercial invoice, packing list, and import manifest, among others.

Step 4: Delivery of documents to collecting bank

After reviewing the paperwork, the remitting bank will deliver the documents and payment instructions to the importer’s bank, known as the collecting bank.

Step 5: Payment by importer

Once the shipment arrives in the destination country, the collecting bank presents the documents to the importer for review. The importer reviews the documents and makes the full payment.

Step 6: Release paperwork

Once the payment is received, the collecting bank will release the documents to the importer.

Step 7: Items release

After showing the proper paperwork to customs, the importer gains access to the shipment.

Step 8: Funds transfer

The collecting bank will transfer the funds to the remitting bank, which will deliver the payment to the exporter.

List of prohibited goods when shipping from India to the UK

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

Advantages of documents aainst payment transactions

D/P transactions have the following advantages3:

Enhanced security for exporters:

Provides exporters with a level of security as documents are only released against payment.

Compliance with local regulations:

D/P transactions can take place seamlessly across diverse legal jurisdictions, facilitating cross-border trade and exports.

Protection against non-payment:

Serves as a safeguard against non-payment as importers cannot gain possession of the items until all payment procedures are settled.

Disadvantages of Documents Against Payment transactions

D/P transactions have the following disadvantages4:

Risk of premature item acquisition:

The importer may acquire the items before the transaction is concluded, potentially delaying or avoiding payment.

Challenge of recovering items:

In case of non-payment by the importer, the shipped items may be left stranded, and the exporter might have to incur the cost of shipping them back.

Challenge in pricing and selling:

If the importer refuses to pay and the exporter is forced to sell the goods in the destination country, they may not be able to get a fair price and might suffer losses.

Difference between Documents Against Payment (D/P) and Documents Against Acceptance (D/A)

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.

Amazon Global Selling: Your passport to easy e-commerce exports

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce exports program, Amazon Global Selling provides support and guidance at every step of your exports journey – documents and licenses, logistics, payments, advertising, and more.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for Fulfillment by Amazon (FBA) and outsource order fulfillment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping to the world, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

What distinguishes Documents Against Payment (D/P) from a letter of credit?
A letter of credit is a legal document provided by a bank that guarantees that the exporter will be paid the full and correct amount on time. If the importer is unable to make the payment, the bank will make the remaining payment to the exporter.

A D/P transaction, while being facilitated by banks, does not provide any such guarantee of payment. It is less secure than a letter of credit as there is always a risk that the importer may refuse to pay after the shipment has reached the destination country6.
What function do documents against payment method serve in global sales transactions?
Documents Against Payment (D/P) primarily functions to protect the interests of exporters, ensuring they receive payment from the importer before releasing shipment documents to them. This provision eliminates the practice of deferring payments to a later date.
Published on January 31, 2024.


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