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Cash Terms

A number of other selling terms are commonly used in connection with cash sales. The abbreviations for these terms are explained below. These are not open account selling terms, but are included here so that they may be distinguished from the selling terms discussed in the previous section.

CWO
Cash with Order. The buyer must send payment for the material with his order before the seller is willing to ship the goods; or if the goods are not already produced, before the seller is even willing to manufacture the goods.
PRO FORMA
Cash in Advance. This is similar to CWO terms, indicating that the customer must pay cash before the seller is willing to ship, or go into production on a special product.
COD
Cash on Delivery. While there is no danger of a credit loss involving the entire amount of the shipment on COD sales, as title remains in the hands of the shipper until the purchaser pays for it, the shipper may sustain some loss. If the purchaser is not in a position to pay promptly for the goods when they arrive at the destination, and possibly not able to pay at all, the shipper will have to incur carrying, packing, transportation, storage, and other incidental charges. More serious than the extra charges however, is the problem that arises out of reselling the goods. The material may have been shipped many hundreds of miles from your plant. If it is a seasonal item, you may have missed the market, and you may tie up your capital in this inventory.

Before leaving cash terms, a note of caution is advisable regarding the selling terms Net Cash and Cash on Arrival. These terms are not cash terms as defined earlier, but are open account terms of short duration. Net Cash or Cash on Arrival generally implies that the customer has about ten days before paying. This short period gives him an opportunity to inspect the goods before paying. Generally these terms are given by raw material suppliers and are regular to the industry. They do not imply that the credit of the customer is weak as do CWO, CIA, CBS, and COD.