![]() ![]() The supplier must deliver the goods or service, otherwise, it will require to pay back the cash advance plus the penalty. ![]() This type of arrangement is often used when one company needs to guarantee that it will receive a product or service from a supplier, so they need to lock the guarantee with the supplier. As with anything, weigh the pros and cons carefully before making a decision on whether or not to pay cash in advance.Ī company that pays cash in advance is a type of business arrangement in which the customer makes an up-front payment to a supplier for goods or services that have yet to be provided. This can tie up a good portion of your working capital, which could be better used elsewhere in the business.Īdditionally, if something goes wrong with the product or service, you may have a harder time getting a refund or resolution since you already paid for it. Perhaps the most obvious is that you need to have the cash on hand. Of course, there are some disadvantages to paying cash in advance as well. This can be a significant saving, especially if the company makes a large purchase. They have the customers’ money locked in, so they are able to provide a good price with good credit terms. Supplier has the obligation to deliver the goods or service to the buyer after receiving advance payment.Īnother advantage of paying cash in advance is that it often secures better pricing from the vendor. ![]() The buyer will almost guarantee to receive the goods or service. It will help to prevent the buyer from canceling the purchase. It will show the commitment of the buyer to the seller. The cash paid in advance from the company will help to guarantee the purchase with the supplier. Journal entry for cash paid in advance is the process of the company paying cash to the supplier before receiving the goods or services. ![]()
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