How to Request an Advance Payment in Singapore?
An advance payment refers to the situation when payment is received by the business, from the customer, before goods have been dispatched or before services have been performed for them. Generally, advance payment is made to reserve the services or products from specific suppliers. This practice is common in industries where the supplier or seller has a higher bargaining power. Advance payment is generally requested via two methods. These methods are a proforma invoice and an advance invoice. These will now be discussed.
With Proforma Invoice
The primary purpose of sending a proforma invoice is to make it easy for customers to clearly understand the terms and conditions of the trade. It can be thought of as a preliminary bill of sale. However, it is not a final invoice but an initial invoice which is sent to clarify the rate, quantity, product description, taxes, customs duties, and total amount payable. The proforma invoice is also used to secure an advance payment for the potential dispatch of goods. In this way, it helps to mitigate the risk of non payment and default.
With Advance Invoice
Using an advance invoice is another way to collect advance payment from customers. The advance payment invoice is sent to the customers with the intention of collecting payment from them prior to the shipment of goods or dispatch.
The supplier can request a full or a partial payment of the invoice from the customer, depending on their deal. For instance, a certain percentage or full payment of the invoice can be requested from the customers. This will depend on the business preference and policies.
Tips to Handle Advance Payment Requests
In business, it is necessary to build strong working relations with the customer while also fostering a culture of trust. That is why requests for advance payments should be handled professionally, in order to ensure a smooth execution of trade.
Following, are the steps that help to request advance payments from customers professionally:
Clearly Define the Terms and Conditions of the Invoice
The advance payment of the deal or sales transaction should be clearly mentioned in the terms and conditions of trade. The details for the advance payment should be specified clearly. For instance, it should be mentioned if you collect 50% or 100% in advance. By communicating a specified percentage, this helps to ensure clarity, in terms of defining the payment schedule as well as planning the cash flow budget.
Offer Discounts and Incentives to Expedite the Process
For the customers that are making advances payments, it may be ideal to offer certain discounts or incentives for them. This will motivate the customers to make advance payment on a timely basis and this in turn, helps to expedite the process.
Establish Trust and Justification for Payment
It is a good idea to provide justification as to why you need to collect an advance payment from the customer. It is best that the customer understands why they need to make a payment before the goods have been received. For instance, you may explain and justify that an advance payment is to be collected, in order to source resources to support the initial production.
Assure Advance Payment
By assuring advance payments, this helps the customer to gain confidence in making the payment. This kind of assurance is to confirm with the customer that the payment received in advance will be used for the agreed purpose. For instance, assurance can be made to the customer that the funds of the advance payment received from them, will be used to fulfill their order.
Express Gratitude and Ensure Flexibility
When requesting an advance payment from the customer, it is always wise to be thankful and polite in communications. It is important to note that the customer is not legally obliged to make advance payments. From the customer’s side, agreeing to make an advance payment is a positive gesture and shows that they wish to conduct business with the supplier. There are many factors that encourage customers to make an advance payment. These factors include, limited product supplies or product shortages, fear of missing the product and services, among others.
Conclusion
An advance payment is made when the customer is required to make the payment before goods are dispatched to them or before services are performed for them. Generally, there are two methods to request advance payments from customers. These are, by sending an invoice called an ''advance invoice'' and an invoice called a ''proforma invoice''. The basic purpose of a proforma invoice is to communicate a preliminary bill in regards to the product or services to be delivered. It can also be used to collect advance payment.
Ensuring professional behaviour and attitude while requesting advance payment from customers is important and recommended. Furthermore, it is recommended that sellers follow certain best practices when requesting advance payment from the customer. For instance, terms and conditions of the trade should be clearly defined on priority. Incentives and discounts may be offered to expedite the collection. Lastly, assurances should be given to the customer about the security of their funds and the business commitment to fulfill the order.
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