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Payment in Advance
Payment in advance before the shipment is probably the most desirable method in Foreign trade. In this method of payment, the producer/Export is relieved of collection problems and has immediate use of the money. This method of payment provides early positive cash flow for the Producer/Exporter. Sometimes advance payment could create a cashflow problem for the customer and increases the level of risk.
It is a type of payment made ahead of its normal schedule such as paying for a good or service before you actually receive it. They are sometimes required by sellers as protection against nonpayment, or to cover the seller’s out-of-pocket costs for supplying the service or product.
There are many cases where payments are required. Consumers with bad credit may be required to pay companies in advance, and insurance companies generally require an advance payment in order to extend coverage to the insured party. In many cases, they protect the seller against nonpayment in case the buyer doesn’t come and pay at the time of delivery.
They are recorded as assets on a company’s balance sheet. As these assets are used, they are expended and recorded on the income statement for the period in which they are incurred.
