Payment Against Documents (PAD)
Payment Against Documents (PAD) is a trade payment arrangement where the buyer makes payment after receiving the shipping and title documents from the seller or bank. These documents, such as the Bill of Lading, commercial invoice, and packing list, serve as proof that the goods have been shipped. Payment is required before the buyer can access the documents needed to claim the cargo. This method balances risk between the buyer and seller.
Under PAD, the seller ships the goods and submits the documents to their bank, which then forwards them to the buyer’s bank. The buyer reviews the documents and makes payment to receive them. Only after payment can the buyer use the documents to clear and collect the goods. This process provides sellers with assurance of payment while giving buyers confidence that goods are already in transit.
PAD is commonly used in international trade when parties have an established relationship but still want controlled payment security. It reduces the seller’s risk of non-payment compared to open account terms. At the same time, it avoids the complexity and cost of a full Letter of Credit. Timing and document accuracy are critical for smooth execution.
Overall, Payment Against Documents is a practical trade settlement method that links payment directly to shipment proof. It promotes trust, ensures financial control, and supports efficient cargo release. When documents are accurate and timely, PAD helps keep trade transactions smooth and predictable.
Frequently Asked Questions about Payment Against Documents (PAD)
Clear answers to the most common questions people have when learning about Payment Against Documents (PAD).
The buyer pays after receiving the shipping documents but before taking possession of the goods.
Common documents include the Bill of Lading, commercial invoice, packing list, and insurance documents if applicable.
PAD is simpler and less costly, but offers less bank-backed security compared to a Letter of Credit.