Dear Crabby,
I’m the credit manager at a gear manufacturing company and recently received a purchase order from our long-term Canadian customer. Everything seemed normal until I noticed the shipping term was listed as “DAP.” As I’ve never encountered this term on their PO before, I looked it up and DAP means “Delivery at Place,” in which payment isn’t due until the shipment arrives at the buyer’s designated location.
This is a major departure from our usual shipping terms, as we have always invoiced and expected payment once the goods have left our warehouse. Now I’m concerned that this new shipping term could significantly delay payment and throw off our receivables.
Am I overreacting or is this something I should push back on?
Signed: Caught Off Guard
Dear Caught Off Guard,
Nope, you’re not overreacting at all, and I believe you just dodged a bullet! Too often, credit professionals are laser-focused on financial statements, credit limits, and payment histories, but overlook a critical element that directly affects collectability: terms of delivery. The Incoterm “DAP – Delivery at Place” shifts a surprising amount of control to the buyer and can result in substantial delays in billing, payment, and cash flow. You were right to flag this, and frankly, I wish more credit managers had your instincts.
Here’s the kicker with DAP: under this term, the seller is responsible for getting the goods all the way to the buyer’s specified destination, but the buyer is responsible for unloading and clearing customs. And here’s the part that affects you — delivery isn’t considered complete (and therefore payment isn’t due) until the goods physically arrive at that destination. If your company’s accounting and invoicing systems are set up to trigger invoices upon shipment (e.g., FOB origin), this throws a big wrench into your process. Your invoice may technically be “early,” and that gives the buyer cover to delay payment or dispute the due date.
Let’s say it takes two days for the goods to ship to the border, and then another five days to clear customs in Canada. Then the shipment gets held at a distribution hub over the weekend before final delivery. That’s a 7–10-day delay between your shipping date and when the invoice terms can even start ticking. If your invoice terms say, “Payment is due on ship date,” and the customer’s PO says “DAP,” you could be chasing payment before it’s even contractually owed, and they’d be right to push back.
It gets worse if the buyer intentionally uses DAP to float your receivables while they wait for inventory to arrive. Some buyers, especially in cross-border deals, use Incoterms tactically. They know it causes confusion for sellers who aren’t familiar with international trade conventions, and they take advantage of companies that don’t clarify the financial implications upfront. If your sales or logistics team agrees to DAP without looping in credit, you’re essentially giving your customer a free 7-10-day extension without even knowing it.
So, what to do?
First, speak with your sales and operations folks. Make sure everyone understands what DAP means and agrees on what Incoterms your company will or won’t accept. Second, revise your credit approval and contract review procedures to flag any Incoterm that differs from your standard billing trigger. If your company prefers to invoice on “FOB shipping point, DAP is not just a different preference, it’s a contractual contradiction.
Second, communicate with the customer immediately. Let them know that unless otherwise agreed in writing, your payment terms begin upon shipment and clarify that Incoterms like DAP must be negotiated in advance.
Bottom line: if credit managers don’t check delivery terms, they risk silently extending credit by a week or more with every shipment. That’s not just bad cash flow management; it’s letting the customer rewrite the rules of engagement without first negotiating these items properly. You were sharp to catch this, and your diligence may have just saved your company from a slow drip of delayed payments.
Please let me know what happens.
Crabby
Dear Crabby is a credit, collection, and human resources advice column by Nancy Seiverd President CMI Credit Mediators Inc. Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
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