What is Advance Terms of Payment #
Advance payment is a payment term used in international trade for exports. It involves the importer paying the exporter in full before the goods are shipped. The exporter then ships the goods to the importer.
Advantages of advance payment terms in exports include: #
- Reduced risk of non-payment: Advance payment terms significantly reduce the risk of non-payment or delayed payment for the exporter since they receive payment before shipping the goods.
- Simplicity: Advance payment terms are relatively simple and straightforward compared to other payment methods.
- Control over cash flow: Advance payment terms give the exporter full control over their cash flow since they receive payment before shipping the goods.
Disadvantages of advance payment terms in exports include: #
- Risk for the importer: The importer bears the risk of the goods not being shipped or not meeting the required quality or quantity.
- Reduced competitiveness: Advance payment terms can reduce the competitiveness of the exporter since they require the importer to pay in full before receiving the goods.
- Limited market access: Some importers may not be able to afford advance payment terms, which can limit the exporter’s market access.
To summarize, advance payment terms in exports offer reduced risk of non-payment, simplicity, and control over cash flow. However, they may put the risk on the importer, reduce the exporter’s competitiveness, and limit market access. Exporters should carefully consider the risks and benefits of advance payment terms and ensure that they have adequate safeguards in place to mitigate the risks.