Is an advance payment or a deposit? Understanding the concept

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Prepayment is a payment made in advance and prior to the transfer of goods, as well as the performance of work or the provision of services. The use of this type of payment contributes to the stabilization of relations between counterparties, guaranteeing the interests of goods owners in case of unstable market conditions, inflation and a crisis in the payment system.

In accordance with the Civil Code, payment by the buyer of goods must be made either before or after receiving them. In other words, the transfer of goods and its payment should be as close as possible in time. Thus, prepayment is an advance received by the seller for the planned delivery.

Views

In practice, it is customary to distinguish between the following types of prepayment:

- full, amounting to the full amount of the expected delivery;

- partial, represented by a fixed amount or percentage, which are agreed in advance;

- revolving advance payment is a payment made during long-term cooperation. Often this operationaccompanied by regular shipments of goods or services.

Invoice

An advance payment invoice is a document that is designed to pay for a certain product or service. This payment document is very important for both the seller and the buyer.

The invoice form is not unified, so the main requirement for its design is the reflection of the mandatory details that are necessary to document the actual sale of a product or service.

Return

If the seller does not provide the goods within the specified time, the buyer has every right to demand a full refund of the prepayment. There is another option for interaction between counterparties - discussing with the seller the possibility of postponing the terms and signing an additional agreement.

If the buyer refuses to return the advance payment, he needs to make a written application addressed to the seller. This document must indicate the name of the goods, prepayment and the established delivery time. The application can also indicate the amount of pen alty that the seller must pay for violation of consumer rights. The application is drawn up in two copies, one of which is handed over to the seller against signature.

If the seller fails to consider these claims within ten days, the buyer has every right to file a lawsuit on this issue.

Full prepayment

Increasingly, when interacting with business entities in the modern market, it is usedthe concept of "prepayment 100%". This is an advance payment in full for the planned delivery of the goods.

This form of payment is quite successfully used when making purchases via the Internet. The user can find an online store with attractive prices. However, he is faced with the fact that the main condition for making purchases is 100% prepayment. This is associated with a certain risk in the modern service market, since there are many cases when, having received an advance in the amount of the cost of the goods, the seller simply disappears.

When using this type of payment, a good system of discounts often works. It should also be noted that in other states, prepayment is also quite successfully used - this is a highly effective tool that stimulates the development of market relations. At the same time, counterparties in this case treat each other with understanding and trust.

Benefit from advances

Benefit from advances is a rather relative concept, since a business entity that has received an advance payment still needs to fulfill its obligations under the contract (perform work or ship goods). Therefore, we can talk about receiving income only after the actual completion of this interaction.

In case of full or partial refusal of the enterprise to fulfill its obligations, such an advance will need to be returned.

Thus, an advance payment to suppliers is an advance paid against the future delivery of goods. Sometimes the seller changes his mind. In this case, the service is notturns out (the goods remain in the warehouse of the supplier), and the money is returned to the buyer.

Prepayment, advance and deposit: some differences

In this article, both concepts were used as synonyms, but in practice there are some differences between them.

Thus, an advance payment is a payment for current deliveries that are made within a certain time period. It is assumed that the process of manufacturing and supplying goods or performing work (provision of services) does not depend on this payment.

Advances are made against future deliveries. Often these funds can be used to manufacture a product, which will subsequently be delivered to the entity that made such an advance.

Sometimes a certain quantitative criterion is used to determine the differences between prepayments and advance payments. In this case, a partial prepayment can be called an advance. However, tax and accounting do not focus on the fundamental differences between these concepts. It should also be noted that in the legislation these terms are used as synonyms.

At the same time, prepayment and advance should not be confused with a deposit. Often, in legislative acts, the definition of the latter term misleads business entities. And yet, a deposit is an amount of money that is issued by one contracting party to another as evidence of the conclusion of a certain contract. This concept serves as a security for the execution of this agreement.

When doneby the parties of their own obligations without problems, the deposit can be identified with the advance. However, if even the slightest violation of the obligations of any of the parties takes place, the difference between a deposit and an advance payment immediately becomes clear. So, if there is a failure to fulfill obligations on the part of the entity that gave the deposit, it remains with its counterparty (who received this amount). If the recipient violates the obligation, he must return the deposit to the seller in double size.