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Advance payment in International Trade - Pros And Cons


There are many ways to pay and get paid in international trade. Some types of payment are more beneficial for the buyer rather the seller or opposite.


Which one is the best for your business?


One of the top 5 most used internationally payment methods is Advance Payment,



ADVANCE PAYMENT


It is also known as pre-payments or cash in advance. The buyer completes the payment and pays the seller in full before the merchandise is delivered and shipped off to the buyer.


In the clean payment method, all shipping documents, including title documents, are handled directly by the trading parties. Clean payment method is an inexpensive and uncomplicated method for both parties because the role of banks is limited to clearing funds as required.


While this is the most advantageous option for sellers, it presents a significantly high risk for buyers as it produces disadvantageous cash flow and no definite guarantee of receiving the goods or the condition in which they arrive. This is generally a recommended option for sellers who are dealing with new buyers or buyers with weak credit ratings, and/or for high-value products.

Source 1, Source 2, Source 3


Advance Payment methods include:


  • Debit/credit card payment

  • Electronic bank payment

  • Wire transfer

  • Telegraphic transfer

  • International cheque

  • Others


Pros and Cons of Advance Payment Method

Source


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