With the cash- in- advance payment method, the exporter can avoid credit risk or the risk of non-payment since payment is been received prior to the transfer of ownership of the goods.
Cash in Advance is a pre -payment method in which, an importer pays in advance for the items to be imported prior to the shipment of goods.
Cash- in- Advance method of payment creates a lot of risk factors for the importers. Insisting on cash- in- advance might result in exporters losing customers to that of the competitors who are willing to offer more favorable export import payment terms to the buyers.
In international trade, Cash in Advance methods of payment is usually been used when –
- The Importer has not been long established or is a new customer
- The Importer’s credit status is unverifiable, doubtful or unsatisfactory.
- The country’s commercial or political risks are very high in the importer’s country.
- The exporter operates an internet-based business where the acceptance of credit card payments is a standard way of conducting business transactions.
- The product is in heavy demand and the seller does not have to accommodate an Importer’s financing request in order to sell the merchandise.
In international sales, wire transfers as well as credit cards are the most commonly used cash- in- advance options that are accessible to that of the exporters.
Below mentioned are the cash- In- advance payment methods, namely –
1. Wire Transfer –
It is the most secure and preferred method. It is a commonly used method and adopted world – wide. There are certain pre- requirements for this payment method namely, exporters should provide clear routing instructions such as receiving bank’s name and address, bank code, SWIFT address and seller’s name -address, bank account title, and account number. Importer or exporter through mutual concern could pay the transfer fee.
2. Credit Card –
The rules governing international credit card transactions differ from country to country. Credit cards may help the business grow because of their convenience and wide acceptance. For direct payments by the exporter, payment through credit card is a viable mode. Transactions are placed using the web, telephone or fax and so due care needs to be taken.
3. Escrow service –
Selecting this mode of payment would mean selecting mutually beneficial cash- in- advance option. This service protects importers as well as exporters as it places funds in the trust of third party. Either of the parties or as per the terms decided can do payment of fees for this type of services.
4. Check payment –
The least adopted payment method of cash- in- advance is payment by check. There is a huge delay in collection of money as the cheque is drawn on the importer’s account and mailed to the exporter, which takes long time in processing. The money collection process would be complicated if the check is in a foreign currency or is drawn on a foreign bank.