Advance payment is mostly done by importer through Telex transfer in international trade where the payment is done in advance by the importer to the exporter before shipment/export of the goods or against the proof of shipment (shipping documents showing as a proof that the goods have been exported, example Bill of Lading document).
Advance payment provides the least security for the importer, who is totally dependent on the exporter to hold up to the agreement and deliver the goods as agreed.
Let us go into details of payment against proof of shipment
In this payment system, the exporter makes shipment before payment of the goods. However, the importer agrees to pay for the goods upon receipt of a proof of shipment by e-mail, usually a copy of the bill of lading. The bill of lading (BL) is provided by the shipping agency as a proof of the shipment/export has been made from the origin port by the supplier.
After the exporter ships the goods by sea or air, the shipping agent gives BL or AWBL as a confirmation that the goods are loaded in the ship and on-boarded.
The exporter after getting the BL sends the BL copy and not the original only BL scan copy to the importer, to show as a proof that export is done.
After the importer gets the proof, the importer sends the full amount of the invoice to the exporter.
After exporter getting the full amount, sends all the shipping documents including the original BL to the buyer to release the goods once the goods arrive in the destination port.
Payment against proof of shipment settlement is simple and cost effective and avoids most of the bank charges and the delay involved in a conventional documentary collection. However, this mode presents a risk for the exporter, who may have to find a new buyer or ship the goods back, if the original importer defaults.
