Methods of Payment/Cash in Advance (Prepayment)
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Unit 4.1-Methods of Payment |
Introduction | Cash in Advance | Documentary Collections | Letters of Credit | Open Account | Combining Methods | Summary | Resources | Activities | Assessment |
Cash in Advance/Prepayment
editCash in Advance/Prepayment occurs when a buyer sends payment in the agreed currency and through agreed method to a seller before the product is manufactured and/or shipped. Upon receipt of payment this seller then ships the goods and all the necessary shipping and commercial documents directly to the buyer.
| Time of Payment | *Prior to manufacturing and/or shipping, through the agreed upon method (cash, wire transfer, check, credit card, etc.). |
|---|---|
| Goods Available to Buyer |
*After payment is received. |
| Risks to Seller | *Product is manufactured and never paid for. |
| Risks to Buyer | *Seller does not ship per the order (quantity, product, quality, shipping method). *Seller does not ship when requested. |
| When Appropriate to Quote or Use |
*When there is no established relationship between the buyer and seller. *Product is a special order and can only be sold to this specific buyer since it contains company logo, etc. *Seller is confident that importing country will impose regulations deferring or blocking transfer of payment. *Seller does not have sufficient liquidity or access to outside financing to extend deferred payment terms. |
| Financing | *Buyer must have cash or financing available. |