In this method, export price is collected in advance prior to the actual export. Generally, sellers and purchasers who closely know each other use this payment method.
Although the exporter is completely guaranteed in this payment method, the importer faces a risk in which it may not receive the goods it orders or receives goods of low quality.
On the other hand, the exporter is advantageous because it collects the price of the goods in advance.
How Does It Work?
Importer makes the payment prior to the receipt of the goods.
Exporter gets the money and then sends the goods to the importer.
1.Do not inspect loading documents.
2.Do not get into the liability of payment.
3.Do act independently from sales contract.
1.Low cost – it enables cost controlling with the help of low expenses of the banks.
2.It's a simpler and easier payment method compared letter of credit.
3.It provides guarantee to the exporter.
Importer faces the risk of not receiving the goods for which it has made a payment.