Posted in Finance, Accounting and Economics Terms, Total Reads: 216
Definition: Cash in Advance (CIA)
Cash in advance or CIA is a payment method in which the importer must pay the full amount in advance in cash before a shipment is made. A CIA is a transaction in which the buyer needs to pay for the good or service in full before a good is delivered or a service is rendered. This type of payment method is also known as a Cash before Delivery (CBD) method or Cash with Order method.
By entering into a CIA transaction, the exporter or the seller of the product is protected against loss that occurs in cases where the importer or buyer fails to make a payment after the delivery of goods.
In international trade, there are no set of rules to govern CIA transactions. UCP 600 governs rules related to Letter of Credit and URC 522 governs transactions related to cash against documents (CAD). Both these rules are published by ICC. The ICC has not published any kind of rules for CIA transactions. It is because of this reason that exporters and importers need to check for CIA details on the invoice or on the international sales contract so that any kind of misunderstanding or mistake can be avoided.
The payment settlement methods for a CIA contract can be
• Wire transfer
• Credit card
• Payment by cheque
The main drawback of CIA transactions is that a seller can lose customers to competitors over payment terms. Also there are no additional earnings through financing operations.
We should use CIA method when:
• The importer is a new or unknown customer
• The creditworthiness of the importer is doubtful
• There are high political and commercial risks in the importers country
• The exporter works in an e-commerce business and such payment methods are more convenient.