Cost, Pricing, and Payment - Main types of payment

7 important questions on Cost, Pricing, and Payment - Main types of payment

What means Open account?

This means that the goods will be shipped and/or the services will be performed before any payment or guarantee of payment is made. The supplier invoices the customer and expects payment in 30, 60 or 90 days, depending on what has been negotiated.

Generally used with customers who have been pre-qualified as posing a very low risk to the suppliers company.

What means cash in advance?

The most secure method. The customer makes an advance payment of a specified percent of the contract value. Unless protected under local law, an advance payment generally needs to be secured by an advance payment bond that the supplier has to obtain.

What means Personal or individual guarantee?

This is a legal document making the principal of the customer's organization personally liable for payment to the supplier, in
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What means Corporate guarantee

In case of smaller customer companies with an inadequate credit rating may be affiliated with a parent company that has an acceptable credit rating, which agrees to guarantee payment.

What means Irrevocable Standby Letter of Credit?

Issued by the customer's bank, this is drawn upon only if the customer does not make payment. Used in case of international customers.

What means purchase Money Security Agreement (PMSA)

This legal agreement gives the supplier a security interest in the inventory shipped. Use in the US by resellers or distributors.

What means Consignment sales ?

This allows their customer to delay payment for a certain period or specified conditions are met.

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