What type of payment mechanism requires payment before goods are shipped?

The type of payment mechanism that requires payment before goods are shipped is cash in advance. This method places the financial responsibility on the buyer to provide payment upfront, ensuring that the seller receives payment before they engage in the shipping process. It is often utilized in scenarios where there may be uncertainty or risk associated with the transaction, providing security for the seller. By requiring payment in advance, the seller mitigates concerns about buyer default or shipping losses.

Other options, such as a term or time draft and an open account, involve different payment structures that allow for a delay in payment or require that payment occurs after the goods have shipped. A letter of credit, while also a secure method, typically involves an agreement between the buyer’s and seller’s banks to make a payment upon meeting specific conditions, which does not necessarily require upfront payment prior to shipping. Thus, cash in advance stands out as the clear choice for requiring payment before the shipment of goods.