Money in the morning – chairs in the evening: why prepayment becomes the norm of business

In recent years, many companies in logistics, trade, manufacturing and international supply are increasingly faced with a tough working principle: first, money. - Then the goods, transportation or service.

What used to be considered an exception or a sign of distrust is gradually becoming the norm of the market. This is especially noticeable in international trade, supplies from China, logistics, the agricultural sector and industry.

The reason is simple: the business world has become much less stable. Risks have increased at almost all stages. - from the purchase of goods to international settlements and delivery.

As a result, companies are increasingly operating on a model of maximum financial protection.

Why the market has become more cautious

Until a few years ago, many transactions were based on deferred payments, trust and long-term partnerships. Today, the situation has changed.

Business fears:

• cash gaps;
• currency risks;
• sanctions restrictions;
• bank failures;
• delays in payment;
• bankruptcy of counterparties;
• Logistical disruption.

Caution has grown especially in international trade, where a single payment or delivery issue can paralyze an entire chain.

That is why more and more companies are trying to minimize the risks before they start working.

Logistics was one of the first to move to prepayment.

The logistics market is particularly sensitive to financial risks. The carrier, freight forwarder or agent often has to pay the costs in advance:

• freight;
• containers;
• terminals;
• railway fares;
• storage;
• paperwork.

At the same time, logistics companies themselves do not always have a large stock of free funds.

Therefore, the “payment first” model - Since then, work has gradually become the standard in many areas of international logistics.

This is particularly true:

• container transportation;
• supplies from China;
• Multimodal logistics;
• export transportation;
• Working with new clients.

Manufacturing also stops working in debt.

Manufacturing companies face a similar situation. The cost of production is growing, raw materials are becoming more expensive, and delivery times are becoming less predictable.

For the factory, order launch - This is an expense.

• procurement of materials;
• loading of equipment;
• staff work;
• reservation of production facilities.

If the customer abandons the transaction or delays payment, the company may suffer serious losses.

This is why many companies today require:

• deposit
• partial advance payment;
• payment of raw materials in advance;
• phased financing of the project.

These rules are particularly stringent in international production and contract assembly.

The Chinese market has long lived by such rules. n

For many companies starting out in China, the principle of prepayment seems unusual at first. However, this has long been considered normal practice within Chinese businesses.

Chinese factories rarely start production without financial confirmation from the customer. For them, it is a matter of resource protection and load planning.

The standard scheme often becomes:

• prepayment before launch;
• interim payment;
• Final settlement before shipment.

And even large customers often work on this model.

Why Businesses Have to Adjust

The biggest mistake of many companies - Consider prepayment as personal distrust. The market is actually becoming more cautious.

Today, those who can:

• Proper distribution of working capital;
• Plan purchases in advance;
• create a financial cushion;
• work with multiple sources of funding;
• control the accounts receivable.

In many industries, the ability to quickly pay for services and supplies is already becoming a competitive advantage.

How To Reduce Risks In This Work Model

Getting away from the prepaid market is unlikely. But business is gradually developing adaptation mechanisms.

Most often, companies try to:

• splitting payments into stages;
• work through verified agents;
• use letters of credit;
• to conclude long-term contracts;
• check the counterparties in advance;
• fix the terms in the contracts as much as possible.

In international trade, the reputation of the company and the history of cooperation are becoming increasingly important.

Trust is still the main factor.

Despite increasing caution, the market is still built on relationships. If partners work together for a long time and go through complex projects, conditions gradually become milder.

Verified customers are more likely to receive:

• postponement;
• Flexible payment terms;
• reserve capacity;
• priority delivery;
• better rates.

In B2B, trust is one of the most expensive currencies.

What happens next?

The market is likely to continue to move towards financial caution in the coming years. This is particularly true:

• international logistics;
• import and export;
• industrial production;
• agricultural trading;
• Working with China and Asia.

Companies will increasingly pay attention to liquidity, working capital and financial stability of partners.

The principle of “money in the morning” - Today, chairs cease to be a joke and become the new reality of business. The world of international trade and logistics has become too volatile for many companies to afford the old schemes.

For businesses, this means adapting: learning to plan finances, building long-term relationships, and understanding the logic of a cautious market.

Because in modern conditions, the speed of payment is increasingly becoming as important as the quality of goods or services.