Advance Payments
Producers of certain products, such as heavy machinery, often require that the customer, in placing an order, pay a certain percentage of the final selling price in advance. With certain producers, particularly when backlogs of orders are heavy, these terms are customary, and do not imply any weakness on the part of the customer.
However, under certain circumstances, a request for partial advance payments from the customer does indicate a lack of confidence in the latter. For example, with foundries, makers of tools and dies, and others who produce items to customer specification, partial advance payments are requested from customers whose credit standing is not strong. This offsets any extraordinary loss if the customer cannot pay when the tools, dies, or castings produced to his/her requirements are ready. The practice of advance payments is most prevalent in industries where the seller has a relatively long manufacturing cycle and/or the product incorporates design elements peculiar to the buyer’s needs.