Cash in AdvanceCash in Advance
Receiving payment by cash in advance of the shipment might seem ideal: Your company is relieved of collection problems and has immediate use of the money. Wire transfer, which is commonly used, has the advantage of being almost immediate. Payment by check may result in a collection delay of up to 6 weeks—perhaps defeating the original intention of receiving payment before shipment.
Many exporters accept credit cards in payment for consumer goods and other products that generally have a low dollar value and are sold directly to the end user. Since domestic and international rules governing credit card transactions sometimes differ, however, U.S. merchants should contact their credit card processor for more specific information. International credit card transactions are typically handled by telephone or fax. Because those methods are subject to fraud, you should determine the validity of transactions and obtain the proper authorizations before sending goods or performing services.
Exporters may select escrow services as a mutually beneficial cash-in-advance option for small transactions with importers who demand assurance that the goods will be sent in exchange for advance payment. Escrow in international trade is a service that allows both exporter and importer to protect a transaction by placing the funds in the hands of a trusted third party until a specified set of conditions has been met.
For the buyer, advance payment tends to create cash flow problems and to increase risks. Furthermore, cash in advance is not as common in most of the world as it is in the United States. Buyers are often concerned about the possibility that goods paid for in advance will not be sent; another consideration is the reduction in leverage with the seller if goods do not meet specifications. Exporters who insist on advance payment as their sole method of doing business may find themselves losing out to competitors who offer more flexible payment terms.
Many exporters accept credit cards in payment for consumer goods and other products that generally have a low dollar value and are sold directly to the end user. Since domestic and international rules governing credit card transactions sometimes differ, however, U.S. merchants should contact their credit card processor for more specific information. International credit card transactions are typically handled by telephone or fax. Because those methods are subject to fraud, you should determine the validity of transactions and obtain the proper authorizations before sending goods or performing services.
| Consider the level of risk you’re willing to assume in extending credit (and possibly increasing overall sales) versus your desire to be paid in full at time of shipment. |
Exporters may select escrow services as a mutually beneficial cash-in-advance option for small transactions with importers who demand assurance that the goods will be sent in exchange for advance payment. Escrow in international trade is a service that allows both exporter and importer to protect a transaction by placing the funds in the hands of a trusted third party until a specified set of conditions has been met.
For the buyer, advance payment tends to create cash flow problems and to increase risks. Furthermore, cash in advance is not as common in most of the world as it is in the United States. Buyers are often concerned about the possibility that goods paid for in advance will not be sent; another consideration is the reduction in leverage with the seller if goods do not meet specifications. Exporters who insist on advance payment as their sole method of doing business may find themselves losing out to competitors who offer more flexible payment terms.