Payment in Advance in International Business
This is most favoured method of payment from the viewpoint of the exporter. This mode does not have any credit or transfer risk to the exporter in executing the contract, whatsoever. When the conditions in the importer's country are unstable and there is no guarantee of receipt of payment, even after successful execution of the contract, advance payment is always insisted by the exporter. If an order from Afghanistan is received, Indian exporter may prefer to forego the order however attractive the price terms may be, unless advance payment is received.
Exporter receives payment from the importer, in advance, before execution of the order. Receipt of payment can be at the time of receiving the order, initially, or later, in instalments, but before final execution of the order. Payment may be received by means of demand draft, mail transfer or telegraphic transfer in the currency specified in the contract of sale. Even in this mode of payment, slight risk exists in the form of exchange risk from the date of contract till the date of receipt of payment. Risk appears to be an integral of life, at least the slightest! However, importer seldom accepts this method of payment. Importer does not accept the mode unless there is heavy demand for those goods in his country or the goods those circumstances on are tailor- made to the specific requirements of the importer. In y, exporter can dictate the advance payment. When the importer is unknown or his creditworthiness is doubtful and not acceptable to the exporter and the importer requires those goods, there is no alternative to the importer, other than making a payment. Normally, importing country's exchange control restrictions do not permit this type of advance payment. Even when advance payment is allowed, a part payment is made at the time of acceptance of order, another part, in stages, while the manufacturing is in progress, after verification and balance before shipment, finally.
This method works out to be the cheapest mode of contract to the exporter as there would be no commission charges as banks do not charge while crediting the demand draft/ mail transfer/telegraphic transfer amount to the account of the exporter.
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