Question

You are new to international​ trade, and your firm is relatively young and financially struggling at this point. You do not want to overextend credit to others and have to wait for money. As​ such, you have decided you need to take payment before shipping the merchandise. Which system are you​ using?

a) Open Account
b) Documentary Collection
c) Letter of Credit
d) Cash in Advance

Answer 1

Cash in Advance is a payment system where the seller receives payment before goods are shipped, reducing credit risk, especially for financially struggling firms.

Step-by-step explanation:

The payment system that involves receiving money before goods are shipped is known as Cash in Advance. This option is frequently utilized by firms that wish to minimize credit risk when engaging in international trade, especially when a firm is financially struggling and wants to avoid a delay in payment. Under this arrangement, the buyer must pay for goods before they are dispatched, which guarantees the seller receives payment and mitigates the risk of non-payment. The other options mentioned, such as Open Account, Documentary Collection, and Letter of Credit, are different methods of payment that involve extending credit in various forms and typically do not involve full payment upfront.