Page 32 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 2: Methods of Payment and Incoterms

cheque, which may have been received by the exporter even before shipment, but may result Notes
in a collection delay of four to six weeks and therefore frustrate the original intention of
payment before shipment. Those exporters; who insist that they would trade only on the basis
of this method of payment may lose their foreign buyers to competitors who may be willing
to offer more attractive payment terms to the importer for that deal. Cash-in-Advance is most
desirable, safe and acceptable for any exporter as this mode of payment is most suitable and
secure for him.
However, this mode of payment is not safe and secure for importers as they are at risk of making
payment and not having the delivery of goods hence this option of payment is the least attractive
option for the importers. This method of payment may have cash flow problems for importers
and they are at the mercy of exporter who may even not send the goods to importer. This mode
of payment has largely been used in cases where the exporter has sole monopoly in the market
and the importer is in dire need of those goods. Presently this method is largely used by
teleshopping and Internet-based firms, which demand money in advance for sending goods to
buyers. Some popular means for realizing cash-in-advance are tabled as follows:
Table 2.3: Popular means for Realizing Cash-in-Advance

Factor Wire Transfer Credit Card Payment by Check
Cost Costly for the importer as Cost effective method for A little costly as the
the cost of remitting small transactions collection charges will
funds through wire be deducted by the
transfers has to be borne collecting bank
by him
Time Takes least time, in ideal Takes least time and avail Takes time in collection
cases as little as 16 the funds to exporter well of international cheques,
seconds from one before the shipment. usually 4 to 6 weeks
country to another.
Safety Most safe mode of fund Fraudulent use is possible Safe, but exporter has to
transfer as the mode of transfer is check the whereabouts
via online, telephone, or of the bank, as fake
fax methods. Precautions banks are common in
required. LDC countries.
Ease in Very easy to use for Easy to use Requires some efforts at
use large transactions the end of exporter to
deposit the cheque
through the collecting
bank
How it Through SWIFT System Through Online, Fax and Collecting bank sends
4
works via telephone. the cheque to importer’s
bank for transmittals of
funds. Lengthy process
as compared to other
modes.

Key Features of Cash-in-Advance
Some key considerations for any trader, while selecting this method of payment, are:
1. This method is effective in cases where the importer’s credit worthiness cannot be
ascertained and verified and the importer is quite new to international trade and is unknown
to the exporter.
2. The exporter can use this method in cases when the political and commercial risk of the
importer country is very high and banks in the importer’s country have very low credit
ranking and suffer from poor and corrupt regulatory environment.
3. Under Cash-in-Advance method of payment, the exporter will have full or significant
partial payment for the trade deal usually through Credit Card/Wire Transfer/

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