Advance payment

An advance payment, also known as a prepayment, is a financial transaction in which a payer provides funds to a payee before goods or services are delivered. This is typically done to secure a product or service in advance.

The purpose is often to guarantee that a product or service will be provided by a specified date or to secure a spot in a queue for products or services in high demand.

In financial statements, an advance payment is typically recorded as a liability for the payee until the goods or services are delivered.

Overall, advance payments can be a mutually beneficial arrangement, as they provide assurance to both parties in a transaction. However, it’s important for both parties to clearly understand and agree upon the terms and conditions related to the advance payment.