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DP payment terms. Advantages and disadvantages

What is DP term of payment? How does DP term of payment work?

DP OR DAP term of payment is one of the terms of payment in international trade.

D.A.P or D/P terms of payment or Documents Against Payment.

Once cargo shipped out from the supplier’s premises, after completing the necessary export legal formalities of the exporting country, he hands over goods to the carrier who transport them to the final destination of the buyer. After delivery of goods, the exporter is issued a Bill of Lading (under sea shipment) or Airway Bill (under air shipment) by Carrier or his agent.

Are D.A.P terms of payment safe in the export business

The exporter submits all required documents along with Bill of Lading /Airway bill, invoice, packing list, bill of exchange with the bank to send to the buyer through the buyer’s bank.

The seller’s bank, once after verification sends these shipping documents to the buyer through the buyer’s bank. After receipt of such shipping documents by buyer’s bank notifies buyer on receipt of documents and advise to ‘accept’ the documents by effecting payment of export proceeds. Under DP terms of payment (DAP terms of payment), the buyer collects original shipping documents from his bank after making the necessary payment against the sale of goods.

The buyer, once after collecting shipping documents from the bank completes necessary customs clearance procedures in importing country and collects goods from carriers.

Why delay receiving money from the overseas buyer under DP terms?
Although terms of payment under sale contract are against DP basis, some exporters (sellers) receive sale amount late. This happens commonly under sea mode of shipment. Why?

As you are aware, the transit time to arrive goods under sea shipment is more than air shipment. The original shipping documents are required mainly for the purpose of taking delivery of goods from the carrier after necessary legal import customs clearance procedures and formalities. Under DP terms, some of the importers do not accept documents immediately from the bank even after notifying by his bank. He delays accepting documents from the bank till the arrival of goods at the port of destination. So, under DP terms of payment, the buyer drags to collect original shipping documents from his bank till the arrival of goods at the port of final destination.

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