Advance payment

Advance payment involves low risk. The exception is when delivery requires a longer production period before payment is received.

Advance payment offers exporters several advantages. It improves cash flow and payment security, while also keeping bank fees low.

It may not always be possible to secure advance payment, but in some situations it is more important than in others. For example, you should consider requesting full or partial advance payment from new and unfamiliar customers, and for sales above a certain value. If you have a unique market position and your product or service is in high demand, or if you have a monopoly, it is generally easier to secure advance payment. However, if you sell to markets with significant country risk, offer customised goods and services, or sell products with a short shelf life, such as seasonal or fresh goods, you should always require full or partial advance payment.

For larger contracts above a certain value, you should also consider requiring an advance payment of a percentage of the contract value.

Although advance payment secures payment, it may still involve costs. The buyer will often require some form of advance payment guarantee from the exporter. You can read more about different types of financial guarantees here. In addition to an advance payment guarantee, the buyer may require a cash discount. The discount depends to some extent on the industry and market, and may range from one to ten per cent of the sale price.