Every payment term answers one question: who carries the risk between the moment seaweed leaves the supplier and the moment money arrives? In the dried seaweed trade, where suppliers are often cooperatives or small exporters paying farmers in cash, and buyers may be on the other side of the world, the answer matters a great deal to both sides. This guide explains the common structures in plain terms. It is general information, not legal or banking advice.
The main options
- Advance payment or deposit: the buyer pays all or part of the value before shipment. The balance is often paid against a copy of the bill of lading or on arrival. Deposits help suppliers finance purchases from farmers.
- Cash against documents (CAD), also called documents against payment: the seller ships, then sends the original shipping documents through banks. The buyer’s bank releases them only when the buyer pays, and without them the buyer cannot take delivery.
- Letter of credit (L/C): the buyer’s bank undertakes to pay the seller once the seller presents documents that comply exactly with the credit’s terms. Most are governed by the ICC rules known as UCP 600.
- Open account: the seller ships and the buyer pays later on agreed credit terms. Usually reserved for established relationships.
Who carries which risk
It helps to compare the options side by side from each party’s point of view.
- Advance payment: safest for the seller; the buyer bears the risk that goods are late, short or not as specified.
- CAD: balanced on paper, but the seller has shipped before being paid. If the buyer refuses the documents, the seller has cargo at a foreign port and must find another buyer or bring it back.
- Letter of credit: strong protection for both, provided the documents match the credit. Discrepancies in dates, descriptions or weights are a common reason for delayed payment. Bank fees are higher.
- Open account: the seller carries almost all the risk and needs strong trust or credit insurance.
Because L/Cs and CAD both turn on documents, getting the paperwork right is not a formality. Our export documents checklist explains what each document is, and the chosen Incoterm — see FOB, CFR or CIF — decides which party arranges freight and insurance.
Building trust between a cooperative and a new buyer
First transactions are where payment terms cause the most friction. A supplier aggregating from farmers needs cash to pay them promptly; a new buyer is understandably reluctant to send money to someone it has never dealt with. A staged approach usually works better than insisting on either extreme:
- Do due diligence first. Check registration, bank details, references and ideally visit. Our due diligence checklist sets out the basics.
- Start small. A trial shipment limits exposure on both sides.
- Use a structure that protects both. A modest deposit with the balance by L/C or CAD is a common compromise.
- Verify bank details independently. Confirm any change of account by phone with a known contact; payment fraud through altered emails is a real risk.
- Relax terms as the record builds. Payment terms often become simpler once several shipments have gone smoothly.
Frequently asked questions
Why do seaweed suppliers ask for deposits?
Farmers are usually paid in cash at or soon after delivery. A deposit lets a supplier buy and dry the seaweed for your order without borrowing, and signals that the buyer is committed.
Is a letter of credit always the safest option?
It gives strong protection when documents comply, but it is more expensive and less forgiving. A small discrepancy can delay payment. For experienced parties, simpler terms may be more efficient.
What happens if a buyer does not collect documents under CAD?
The seller still owns the goods but they are sitting at the destination, incurring storage costs. The seller must negotiate, find another buyer or arrange return, which is why CAD suits relationships with some existing trust.
Working with Kospermindo
Kospermindo works in long-term partnerships with processors and exporters. Read about how we partner.