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What is an Advance Payment?
Mary McMahon
Mary McMahon
An advance payment is a sum of money that is provided in advance of the date that it is contractually due, or in advance of delivery of the products or services that the payment is intended to pay for. Such payments may be structured into a contract or offered to address a specific hardship situation. In some cases, the full amount due will be paid in advance, while in others, part of the money will be offered in advance and the other part will be paid later.
A common reason to offer an advance payment is because someone is in immediate need of funds that will be due even though the person has not yet earned them. Many authors are offered advances on their work to provide them with money to pay off debts and to live on while they finish their books. Likewise, it is not uncommon for an insurance company to provide part of a settlement in advance to help the customer recover more quickly. People can also arrange advances on paychecks and salary through their employers to address troubled economic circumstances.
With certain types of contracts, an advance payment may be required. People are sometimes asked to pay in advance for some kinds of services and it is not uncommon for shippers to demand advance payment. This is intended to minimize losses. By collecting the money due up front, the shipper can be assured that the goods will be fully paid for. Advance payments can also be used to secure a deal by making it clear that the party with the obligation to pay intends to meet that obligation.
For some types of jobs, advances are provided on expenses. People who need to travel or engage in other activities that may cost money for work can be provided with an advance to cover those expenses. They are required to obtain receipts and provide a full report on how the money was spent when they return, along with submitting any leftover funds. This allows employers to send people out to perform tasks without requiring their employees to cover costs out of pocket.
When an advance payment is issued, documentation usually needs to be signed to indicate how much money was received and the purpose of the payment. If the payment settles an account in full in advance, this will be demonstrated on the documentation. Conversely, if it is the first payment in a series, the paperwork will show this and will indicate the balance due, and when it is due.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
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Discussion Comments
@Oceana – I think that is the best way to deal with credit card payments. I've been doing that for years, and it has always worked well for me.
I've noticed that every time I order something online, I have to make an advance payment. There are increasingly fewer places that give you the option of being billed after the item arrives.
I understand this, though, because the whole process is so anonymous. It isn't like decades ago when people knew everyone in the neighborhood, and everyone shopped at the local stores. On the internet, you can trust no one.
I make advance payments on my credit card balance all the time. I have found that if I have a balance of several hundred dollars, the easiest way to pay it off is one week at a time.
Even though I don't technically owe the company anything until a month from the date of my statement, I like paying it off in advance. I know that my bank account would suffer a huge drop if I paid it all at once, and there is no guarantee that I would have the money on the due date.
If you ask for an advance payment, there's no guarantee that you will get one, but it's worth a shot. My coworker didn't have enough money to make her car payment one month, and she really hated to do it, but she asked our employer if she could get an advance on her check.
He gave it to her, because he is just a generous person. The money will come out of her next paycheck, so it isn't like she can get out of paying him back.
However, many employers probably refrain from doing this. They see it as bad business. Some of them might fear that the employee would quit before their next paycheck.
I work for a newspaper, and new advertisers are required to sign advance payment contracts before we can run their ads. The boss set things up this way after several customers failed to pay for advertisements that had already run.
Some of them are a little huffy about having to pay up front for something that hasn't run yet, but the ones that complain are generally the ones who would have skipped out on their bills, anyway. I think it's a good setup.
After a customer has been running ads with us for awhile, we will switch their payment method so that they don't have to prepay. They have to earn our trust.
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