Advance Payment

What is an 'Advance Payment'

An advance payment is a 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.

BREAKING DOWN '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. Advance Funding

    This refers to any advance made on a future commitment or payment. ...
  2. Automatic Bill Payment

    A money transfer scheduled on a predetermined date to pay a recurring ...
  3. Down Payment

    A type of payment made in cash during the onset of the purchase ...
  4. Payment Option ARM Minimum Payment

    An option to make minimum payments on an payment option ARM, ...
  5. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  6. Prepaid Insurance

    Payments that are made in advance for insurance services or coverage. ...
Related Articles
  1. Personal Finance

    When is a Down Payment Used?

    A down payment is an initial cash payment on an expensive good.
  2. Markets

    Is the Payment Processing Industry Evolving? (PYPL, TGT)

    Learn about the many changes in commerce and payment systems that are happening in the rapidly evolving payment processing industry.
  3. Personal Finance

    Mortgage Basics: The Amortization Schedule

    By Lisa SmithThe amortization schedule for a residential mortgage is a table that provides a breakdown of the schedule of payments from the loan's first required payment to the loan's final payment. ...
  4. Financial Advisor

    Pension Advances: What You Should Be Wary Of

    The terms some pension advance firms require can be costly. Here's how to be sure your clients aren't making bad decisions.
  5. Investing

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Markets

    How Digital Payments Will Change Commerce in 2016

    The way we transfer and spend money is constantly evolving, and 2016 is poised to expand digital payments like we've never seen before.
  7. Personal Finance

    Is Making Biweekly Mortgage Payments A Good Idea?

    Some people believe making mortgage payments every two weeks, as opposed to once a month, can chop years off of a home loan. But is it really a good idea?
  8. Personal Finance

    Delayed Interest: Buy More, Pay Much More Later

    Find out the real cost of buying on a delayed interest plan.
  9. Personal Finance

    Mortgage Basics: Costs

    By Lisa SmithPeople generally think about a mortgage in terms of the monthly payment. While that payment represents the amount of money needed each month to cover the debt on the property, the ...
  10. Retirement

    What is a Lump-Sum Payment?

    A lump-sum payment is a one-time payment for the total or partial value of an asset.
RELATED FAQS
  1. Who benefits the most from prepaid expenses?

    Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ... Read Answer >>
  2. Do prepayments provide working capital?

    Learn how prepayments for various services such as insurance, rent and supplies are included as part of a company's current ... Read Answer >>
  3. What's the difference between cash-on-delivery differ and delivery against payment?

    Find out more about cash on delivery and delivery versus payment transactions and the difference between these two types ... Read Answer >>
  4. Is a deficit in the balance of payments a bad thing?

    Discover how it might be possible to run a balance of payments deficit, what that means in terms of international trade and ... Read Answer >>
  5. How are prepaid expenses recorded on an income statement?

    Understand how prepaid expenses are recorded on a company's financial statements. Learn why a prepaid expense would be considered ... Read Answer >>
  6. What is the difference between accrual accounting and cash accounting?

    Understand the differences between the two basic methods of accounting commonly used by businesses: cash accounting and accrual ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center