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Cash in advance typically refers to one of several concepts within finance and budgeting, depending on the context in which the term is used. One of the most common meanings is the practice of people being able to receive loans based on future income. For example, someone may apply for and receive a loan on Monday, due to immediate need, to be paid back after that person is paid on Friday, usually with interest. Cash in advance can also refer to a practice in which an importer has to pay an exporter in advance for goods, to ensure that payment is made.
Though there are several ways in which the term “cash in advance” can be used, one of the most common is in reference to advance loans. These types of loans, also called payday loans, are meant to assist someone who needs money immediately. The most common reason these loans occur are because someone who has steady income needs money prior to his or her next payday. This person can receive cash in advance as a loan, which is scheduled for repayment at the time the loan is made, plus pay a potentially large amount of interest.
Someone can also receive cash in advance with regard to some form of structured or ordered payment that is paid over a relatively long time. This type of advance is often utilized by someone receiving monthly or yearly payments as part of a court order or as winnings from a contest. Rather than continue to wait for these payments, someone can utilize a company that offers cash in advance to receive a lump sum of part of the total amount. This typically does not work as a loan, however, but instead the company buys out the person’s settlement or winnings for an amount that is less than the total paid over time, eventually making up the buyout and profiting in the long run.
“Cash in advance” can also refer to the process by which an importer and exporter often deal with financial transactions between each other. There is the potential in dealings between these individuals for an exporter to send something to an importer, who may then decide to not pay for the goods received. In order to avoid this type of situation, an exporter may require cash in advance from the importer to be paid prior to sending the goods to him or her.