Question

A Japanese manufacturer (the seller) of optical zoom attachments has signed a contract with a Mexican company (the importer) to supply 10,000 attachments for a contract price of USD 1.2 million, Following multiple discussions, the Japanese company has sought a 10 percent advance payment to help the company secure funds for purchasing raw materials and to ensure the commitment of the buyer. Given this is the first contract between these two companies, the Mexican company has asked for a 5 percent performance guarantee to ensure appropriate delivery on their agreement. Explain how a buyer can use the advance payment and performance guarantee to their benefit?

Answer 1

The buyer can use the advance payment and performance gurantee by following means:

1.The buyer can negotiate with the Japanese Company in a better terms and conditions regarding the price.

2. The buyer company can purchase good quality raw materials and manufacture the required quantity of products within time..It will save time as well as the costs.

3. Advance payments also reduces the transaction exposure to some extent so that the buyer is pretty sure regarding the amount of money from the Japanese company to the extent of advance payment.

4.Advance payment also help the buyer to eliminate its credit risk to the extent of advance payment received,which in turn also help the buyer regarding keeping its performance gurantee.