Payment & trade finance

Advance payment and deposit/balance structure

The buyer pays all or part of the price before shipment. A common structure is a 10–30 % deposit on signing and the balance against copies of shipping documents or on arrival. The deposit funds the seller’s raw materials and production; to protect it, the buyer may ask for an advance-payment guarantee, an escrow account or a verified supplier. A large prepayment to a new supplier is the highest-risk situation for fraud.

Related terms

Telegraphic transfer (T/T, wire transfer) T/T

Payment sent directly to the seller’s account through the interbank SWIFT network. In raw material trade it is used in patterns such as “30 % T/T in advance, 70 % T/T against copy of bill of lading”. It is fast and cheap but carries no bank guarantee: with advance payment the buyer bears the risk, with payment after shipment the seller does. Confirming the IBAN and beneficiary name through a known channel before paying is the key protection against “our bank account has changed” e-mails.

Escrow account

An arrangement in which the buyer’s payment is held by an independent third party – a bank, notary or licensed payment institution – until agreed conditions are met, such as confirmation of delivery or a satisfactory inspection report. Once the condition is met the money goes to the seller; otherwise it returns to the buyer. Simpler and cheaper than a letter of credit, it bridges the trust gap in mid-sized deals between new parties. Always verify that the escrow provider is genuinely licensed and independent.

Bank guarantee (performance bond / advance-payment guarantee)

An undertaking by a bank to pay a stated amount when the beneficiary makes a demand. A performance bond secures the seller’s performance of the contract, typically for 5–10 % of the contract value; an advance-payment guarantee ensures the buyer’s deposit is refunded if the goods are not delivered. International deals usually use on-demand guarantees subject to the ICC’s URDG 758.

Explained in the trade handbook

Trade handbook