Advance Payment

AAA

DEFINITION of 'Advance Payment'

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 'Advance Payment'

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.

RELATED TERMS
  1. Accrual Accounting

    An accounting method that measures the performance and position ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of ...
  3. Accruals

    Accounts on a balance sheet that represent liabilities and non-cash-based ...
  4. Accelerated Payments

    A term associated with making additional unscheduled payments ...
  5. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
  6. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
Related Articles
  1. Why would a company make drastic cuts ...
    Investing

    Why would a company make drastic cuts ...

  2. Exploring The Current Account In The ...
    Economics

    Exploring The Current Account In The ...

  3. Understanding Capital And Financial ...
    Bonds & Fixed Income

    Understanding Capital And Financial ...

  4. What does CHIPS UID mean?
    Investing

    What does CHIPS UID mean?

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center