Advances are a form of payment, but they differ compared to other cash transactions between two parties. Knowing what advances are and how advances work is one of the most effective ways to ensure you make the most of the advantages that advances have to offer. It also provides you with the ability to mitigate against the disadvantages that they can provoke.

What are advances?

Advances are a form of payment that are made ahead of schedule. They will often be completed before a person has received the goods or the services for which they paid. They are relatively standard as they are a form of protection for the seller in case there is a scenario where they never receive payment. A good example would be when a person purchases a prepaid card for their mobile phone. 

By comparison, deferred payment is when a service or product is delivered and then paid for afterward. A typical example of this is how the majority of employees of companies are paid. Employees work for a month, and then at the end of the month, they are paid for their time. 

How do advances work?

Advances work in a simple transaction process with the promise of the service or goods to be delivered at a later date - often with that date agreed. A good example would be buying goods on the internet to be delivered. The seller receives funds, or the advanced payment, before the goods have left their warehouse. 

However, there are many other situations where advances are commonplace, and increasingly so too. For example, should a potential customer have a bad credit history, many companies may ask for an advanced payment for a service or good to ensure that they will not be out of pocket should a non-payment occur in the future. Or, insurance companies often demand an advance for their policies so that their customers are covered from the outset. 

In the majority of cases, should a service or product not be delivered at the agreed time, a refund of the advance will be issued.

Advantages of advances 

One of the advantages of advances has already been alluded to above. They are a good way for companies to protect themselves against financial loss. That is particularly the case with people who have a bad credit history who are likely to miss payments in the future. However, it is also an excellent way for a company to improve its cash flow. Unpaid invoices are one of the biggest drags on a company’s cash flow which can have a material effect on its ability to do business. By having an upfront payment for goods or services to be delivered in advance, they minimize the time spent chasing unpaid invoices and instead have a much healthier current account. 

Contractbook and advances

Contractbook can help in the case of advances by outlining in contracts when payments should be made for future services or goods. In our library of templates, we have many agreements for differing industries and departments, though many will touch upon the issue of payment. In those agreements, it can be stated in clauses how advanced payment is required before any service or good is delivered. For those looking to make the most of the advantages that advance payments have to offer, using our templates and document generation software can take the headache out of the legalities surrounding when payments are due.

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