Cash in Advance

Cash in Advance (or payment in advance) is a method of payment in which the buyer pays the seller before the goods are shipped. It is the most secure arrangement for the exporter, who receives the money — eliminating the risk of non-payment — before parting with the goods, and the least favourable for the importer, who pays upfront and bears the risk that the goods may not arrive as ordered.

Payment is usually made by bank wire transfer (or increasingly other electronic means), sometimes partially (a deposit with the balance later). Because it puts all the risk and cash-flow burden on the buyer, cash in advance is used mainly for new or high-risk relationships, custom-made goods, small orders, or unstable markets — situations where the seller is unwilling to extend trust. It sits at one extreme of the trade-payment spectrum, opposite open account, with letters of credit and documentary collections in between. Choosing among these methods is a balance of risk, competitiveness and relationship — cash in advance maximises security at the cost of buyer appeal.