What Is Cash in Advance?

Cash in advance, also called payment in advance, is the payment method in which a business buyer pays before the seller ships. The U.S. International Trade Administration calls cash-in-advance the most secure method of payment for the exporter, because the importer pays the full or a significant amount of the payment before the goods are shipped.

Payment is usually made via wire transfer, credit card, or escrow service. The agency describes each option for exporters:

• Wire transfer: the most secure and preferred cash-in-advance option for exporters, and typically one of the quickest.
• Credit card: a viable option, especially for small consumer goods transactions and exporters with e-commerce businesses.
• Escrow service: places the funds with a trusted third party until the specified conditions are met, namely that goods have been sent in exchange for advance payment.

The International Trade Administration says exporters should consider cash in advance when:

• The buyer is a new customer or has a less-established purchasing history.
• The buyer's creditworthiness is doubtful or unverifiable.
• The political and commercial risk in the buyer's country is high.
• The product is unique, not available elsewhere, or in heavy demand.

For export sales, the agency compares cash in advance with the other main methods:

• Open account: the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. It is one of the most advantageous options for the buyer and one of the highest risk options for the exporter.
• Letter of credit: a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided the terms and conditions stated in the letter of credit have been met.

Cash in advance is less burdensome than a letter of credit and has less risk for the exporter than an open account. The cost is on the buyer's side: paying in advance creates unfavorable cash flow, so exporters who insist on it as their sole payment method may lose out to competitors who offer more attractive payment terms.

This is general information, not financial or legal advice.

A manufacturer quotes a new distributor $12,000 for a custom production run, on cash-in-advance terms. Two ways the payment can be set up:

• Full payment: the distributor wires $12,000, and the manufacturer ships after the funds arrive.
• Part payment: the distributor wires 50% before production, $12,000 x 0.50 = $6,000, and the remaining $6,000 before shipment.

Shopify B2B is on the Basic, Grow, Advanced and Shopify Plus plans. A company location with No payment terms pays at checkout: Shopify describes it as "Payment is due immediately. This is the default setting." In that case the customer enters their credit card information and clicks Pay now to complete the order.

On the Shopify Plus plan, you can add a deposit requirement to payment terms. This lets you collect partial payment for an order when it's created, and the rest at a later date. B2B customers pay the deposit when they place an order at checkout, and deposits can be paid with a credit card or a manual payment method, such as a bank deposit.

Uncap's guide to Shopify draft orders for B2B covers deposit collection for Shopify Plus B2B merchants: a rep can send a draft that only collects a portion of the total at checkout, which suits large or build-to-order purchases where commitment is needed before fulfillment begins. For accounts that pay on terms instead, Uncap Portal puts NET terms, invoices, and payments in the portal.

• Letter of credit
• Net 30
• Trade credit
• Pro forma invoice
• Incoterms
• Commercial invoice

• International Trade Administration: Cash-in-Advance
• International Trade Administration: Methods of Payment
• Shopify Help Center: Setting up payment terms in B2B