Advance Payment

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DEFINITION

Any type of payment that is made ahead of its normal schedule, such as paying for a good or service before you actually receive the good or service. Advance payments are sometimes required by sellers as protection against non-payment.

INVESTOPEDIA EXPLAINS

Some everyday examples of advance payments are prepaid cellphones, or simply prepaying your rent or utilities as many people do now. In the corporate world, companies often have to make advance payments to suppliers when their orders are large. Suppliers may not have enough capital to buy the materials needed to produce a large order, so they use part of the advance payment to pay for the product they will be creating. If a corporation is required to make an advance payment, it is recorded as a prepaid expense on the balance sheet under the accrual accounting method.


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