Cash in Advance
Cash in advance requires the buyer to pay before the seller ships or releases the goods. It protects the supplier against nonpayment but gives the buyer less protection if the goods are late, defective or never delivered.
Also called: payment in advance · prepayment
Cash in advance means the buyer pays before the goods leave the supplier's control, either in full or as a deposit with the balance due before shipment. It is common in China sourcing, particularly for new relationships, custom tooling and made-to-order production, where a factory will not commit materials and labor without money in hand. The usual pattern is a production deposit followed by a balance payment against shipping documents or a pre-shipment inspection.
The payment itself is simple: a wire transfer or similar payment to the supplier's account, often against a pro forma invoice. The risk is not. Once the funds leave, the buyer has little leverage if production slips, quality is poor or the goods never ship, and recovering money from an overseas counterparty is slow and uncertain. Advance payments are also the moment fraudsters target, through altered invoices and changed bank details, which is why payment diversion fraud checks matter most here.
Buyers reduce the exposure by splitting payments into milestones, tying the balance to an independent inspection, verifying the beneficiary account by a trusted channel, and paying only the legal entity named on the contract. For larger orders, a letter of credit or an escrow arrangement can replace part of the advance. Whatever the structure, the supporting documents should show a genuine commercial purpose so the payment clears bank review without delay.
In practice
Paying in advance gives the buyer almost no protection if the supplier fails to perform. Verify the supplier and the beneficiary account independently before the first payment, not after a problem appears.
Example
Hypothetically, an importer orders 5,000 custom speakers worth US$80,000 from a Shenzhen factory. The terms are a 30% deposit of US$24,000 when the purchase order is signed and the US$56,000 balance after a third-party pre-shipment inspection passes. If the inspection fails, the importer withholds the balance while the factory reworks the batch.
Commonly confused with
| Term | How it differs |
|---|---|
| Open-account trade | Cash in advance is paid before shipment and favors the supplier. Open account is paid after shipment and favors the buyer. |
See also
- Open-Account TradeOpen-account trade allows the buyer to receive goods or services before payment becomes due. It supports the buyer’s working capital but leaves the supplier exposed to the buyer’s credit and payment risk.
- Letter of CreditA letter of credit is a bank’s conditional undertaking to pay when the seller presents documents that comply with its stated terms. Banks examine documents rather than confirming the physical quality or performance of the goods.
- Supplier-Payment TermsSupplier-payment terms define when and under what conditions a buyer must pay a supplier. They may include deposits, production milestones, inspection requirements, shipment events, credit periods and final-balance deadlines.
- Pro Forma InvoiceA pro forma invoice is a preliminary commercial document describing the proposed goods, price, currency and terms before the final invoice is issued. It is commonly used to support quotations, deposits, approvals and import preparations.