What is an 'Installment Receipt'

An installment receipt is a debt or equity issuance in which the purchaser does not pay the full value of the issue up front. In the purchase of an installment receipt, an initial payment is made to the issuer at the time the issue closes; the remaining balance must be paid in installments, usually within a two-year period. Although the purchaser has not paid the full value of the issue, he or she is still entitled to full voting rights and dividends.

BREAKING DOWN 'Installment Receipt'

This type of debt or equity financing is most attractive to issuers that are unable to get an attractive price for more traditional financing techniques, such as a traditional initial public offering (IPO).

Installment receipts often trade on an exchange, in which case, whoever purchases them assumes liability for any installments that may remain. This type of financing is mainly seen in Canada.

Example of an Installment Receipt

For example, a company issues shares at $12 each. Rather than actually being issued a $12 share certificate, you can buy an installment receipt which requires you to make an initial payment of say $8 and the balance of $4 a year later. If the market price of those shares rises to $16, you will end up earning $4 a share, since your total cost will be $8 plus $4. On the other hand, if the market price fell to $8 a share, you would lose $4 a share. If the value of the underlying stock increases after the installment receipt is issued, that should boost the receipt's value and enable you to gain from financial leverage. You could make the initial payment on the installment receipt — representing only part of the full price of the stock — and sell that receipt later at a profit before the next, or final payment is due.

As something of a loan, an installment receipt's central function is financial leverage, although the features differ from a traditional margin account.

  1. Receipt

    A receipt is a written acknowledgment that something of value ...
  2. Gross Receipts

    Gross receipts are the sales of a business that form the basis ...
  3. Form 6252: Installment Sale Income

    Form 6252: Installment Sale Income is a tax form distributed ...
  4. Installment Sale

    An installment sale is a method of sale that allows for the partial ...
  5. Installment Debt

    Installment debt is a loan that is repaid by the borrower in ...
  6. Conditional Binding Receipt

    In life, health and certain property insurance contracts, coverage ...
Related Articles
  1. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam. And you can often apply online.
  2. Taxes

    Can't Pay Your Taxes? What to Do Now

    Not enough cash on hand for your April tax bill? No need to panic. Here's what to do.
  3. Insurance

    Hiring a Contractor vs. DIY: Cost – Benefits

    When you want to change something about your home, the first question to ask yourself is whether it’s more cost-effective to DIY or hire a professional.
  4. Insights

    A Guide To Returning Christmas Gifts

    The Christmas season can be stressful, but returning unwanted gifts can be even more stressful. Here are some tips to help you avoid the stress.
  5. Investing

    Snap Rolls Out Mobile Ad Tool Aimed at Facebook

    Snap takes on Facebook in mobile ads, rolling out the ability for advertisers to target users.
  6. Insights

    Top 10 Apps to Split Bills in 2016 (PYPL)

    These 10 applications have the ability to split bills, distribute expenses to friends and track outstanding payments yet to be received.
  7. Taxes

    10 Steps to Tax Preparation

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  8. Taxes

    4 Ways Business Owners Can Reduce Tax Time Stress

    Business owners who implement these strategies throughout the year will find filing taxes less stressful.
  9. Investing

    Best Buy Stock Tanks on Amazon Service Team Report

    BBY is under pressure after a report that Amazon will offer its own version of the Geek Squad.
  1. What are the differences between global depositary receipts (GDRs) and American depositary ...

    Discover some of the similarities and differences between global depositary receipts and American depositary receipts, and ... Read Answer >>
  2. How long should you hold on to credit card statements?

    Holding on to credit card statements can be helpful when they contain personal purchases, tax-deductible items, or products ... Read Answer >>
  3. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center