Delivery Against Payment System
In the trading arena, payment security is a major concern. The Delivery Against Payment (DAP) system is the tried and tested process by which the security of payment is guaranteed during cross border trades. In this system, the delivery of goods is made only after payment is received by the exporter. Through this process, buyers have the assurance that the goods they get are worth the same amount they have paid, while sellers are ensured that they receive payment before dispatching goods.
DAP system started in late 19th century as a result of the growing inter-country trade and the need for faster, secured and expense-free payment method. With the introduction of this system, international buyers and sellers get the assurance that neither of them can flee out from the deal. DAP system is popular in commodities, where it is important, that the price or quality is not changed after payment and before the delivery.
The DAP system is akin to the deferred payment system, where payment of goods is deferred or else delayed in accordance with the trade agreement, but there are very few secured payment systems such as DAP system. In this process, the exporter suffers reduced risks, as he/she gets payment in advance and also minimizes storage costs, as goods are transferred soon after sale. On the other hand, buyers can get more credits, as their risk of non-payment is diminished.
The seller has a responsibility of ensuring that the goods are delivered in time, as per the agreed trade terms, while the buyer has the responsibility of making payment in full, as per the agreed terms. If either of the parties fails to abide by the regulation, then the defaulting party can be legally accountable for any kind of damage and has to bear the consequences of the breach.
In DAP system, both buyer and seller needs to enter into a contract, where all terms and conditions, such as Quality of goods, quantity, payment date, delivery date, etc. are clearly highlighted. This contract is done through an intermediary, such as shipping agency, banks or lawyers. The intermediary takes care of all the proceedings, such as checking the sources of payment, examining documents associated with the trade and ensures that both parties have agreed to all the terms stated in the contract.
The intermediary acts as a mediator between the two parties and ensures that all of the terms and conditions of the contract are met, so that all parties can be secure in their transaction. The intermediary also ensures that payment is received in full prior to the delivery of goods, which gives assurance to the seller that payment will be made as agreed.
Overall, the DAP system is a trusted and secure system for international trades, as it offers protection to both seller and buyer and reduces risk. This system also removes the need for a third party such as a bank, which could increase the cost and time of the trade. With the effective and secure DAP system, international trade has flourished over the years, boosting the economy of many countries. Those involved in international trades must be aware of the key aspects of the DAP system, to ensure a secure and successful trade.
