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[edit | edit source]

Cash 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.
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