Payment Method: Advance Payment

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As its name implies, the buyer pays in advance for the purchase of the goods. This payment method is generally practiced in the mail order trade. A typical scenario is in response to an advertisement or a circular brochure, the buyer remits payment together with the purchase order to the seller who subsequently forwards the goods.

If the seller has no confidence in the credit or financial standing of the buyer ir the economic or political conditions of the buyer's country, he may not want to extend any credit and insist that the buyer pays in advance for the purchase of the goods.

Certain goods may be required to be specially manufactured or assembled to specifications; thus the seller may need the buyer to make a partial payment in advance to meet the heavy tooling and other costs.

Factors to be considered are:

The Buyer
  • Payment to be made prior to shipment or delivery;
  • Exchange Control or liquidity and cash flow requirements;
  • Seller's integrity and financial standing;
  • Possibility of short shipment, late delivery or goods out of specs;
  • Other factors, for example, political, economic or social conditions in the seller's country.
The Seller
  • Compliance of the contract requirements, for example the goods specifications and delivery schedules.

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