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Which of the following payment methods is the most risky for an importer?Open account,...

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pumamom | Valedictorian

Posted October 6, 2012 at 3:32 AM via web

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Which of the following payment methods is the most risky for an importer?

Open account, irrevocable letter of credit, bank collection time draft, or cash in advance.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 6, 2012 at 3:42 AM (Answer #1)

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Of these choices, cash in advance is clearly the most risky option for an importer.

For an importer, the major source of risk is that something will be wrong with the goods.  They will not be shipped or they will be substandard or damaged.  The importer is at risk if they must pay for the goods before they can be absolutely certain that the goods will be received and in good condition.  In such a case, they risk not getting the goods they think they are paying for.

Of the methods of payment you mention, cash in advance is the most likely to lead to such problems.  In this method, the importer must pay before the goods will be shipped.  This puts the importer in danger of paying for something that will then not be shipped or will not be as the importer expects it to be.

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