Advance Payment

Advance Payment refers to the buyer paying part or all of the goods payment to the seller in advance according to the contract before receiving the goods or documents. It is commonly used for customized products, first-time cooperation, or when the buyer's credit is low, and the seller requires it to reduce payment collection risk. Usage scenarios include: small foreign trade orders, sample fees, deposits (usually 30%), or startup funds before manufacturing complete sets of equipment. Precautions: The buyer needs to assess the seller's credit to avoid payment without delivery; the seller should clarify the advance payment ratio, payment method (T/T, L/C, etc.), and refund conditions. Unlike a 'deposit', an advance payment is part of the goods payment, while a deposit has a guarantee nature and is subject to the 'deposit penalty rule'. In contrast to 'open account' (O/A), advance payment is high-risk for the buyer and low-risk for the seller. Compared with 'letter of credit', advance payment does not rely on bank credit, is simpler to operate, but lacks third-party protection. In practice, it is often used in combination with 'balance against copy of B/L'.