Cash on delivery is the opposite of prepayment. It means that the exporter ships the goods first, and then gives the importer a full set of shipping documents representing the property rights certificate after receiving the importer’s verbal payment commitment without any guarantee. The importer will remit the payment to the exporter after picking up the goods. This method is actually an open account transaction (O/A), also known as sold on credit or deferred payment settlement, which is usually referred to as post-T/T in practice.
Cash on delivery is beneficial to importers, mainly based on the following two reasons: first, the importer does not bear the financial risk, and will not pay if the goods have not arrived or the goods do not meet the contract requirements, and it takes the initiative in the entire transaction; second, since the importer often pays after receiving the goods for a period of time, it virtually occupies the exporter’s funds.
Cash on delivery makes exporters bear risks, mainly based on the following two reasons: first, the exporter ships first, and must bear the risk of importers not paying; second, since exporters often cannot recover the payment in time, the funds are occupied, resulting in certain losses.
Cash on delivery can be divided into two types in international trade: sold on consignment and cash on delivery (COD).
Sold on consignment means that the buyer and seller have negotiated the transaction conditions and signed a transaction contract, and at the same time determined the price of the goods and the time of payment. Generally, the payment is made upon arrival of the goods or several days after the arrival of the goods, and the importer remits the payment to the exporter through the bank by remittance. This specific deferred payment method is customarily called first-out-later settlement, and because the price has been determined in advance, it is also called sold on consignment. Sold on consignment is only applicable to trade settlement when mainland my country exports fresh goods to Hong Kong and Macao.
Consignment refers to a settlement method in which the exporter first ships the goods abroad and entrusts foreign merchants to sell them on its behalf in the local market. After the goods are sold, the entrustee remits the payment to the exporter through the bank after deducting the commission.