Advance Payment Explained

When a buyer pays an amount to the seller even when the product or service has not been delivered, this safeguards the seller from the risk of non-payment and helps them to improve their cash flow. It also helps manufacturing units to manufacture manage vendors products with their own funds or without taking any loan for it. Generally, advance payment is required when the buyer has a history of non-payments in the past.

Advance payments refer to monetary transactions in which a buyer remits a certain portion of the total contract value to the seller before the actual delivery of goods or services. This financial practice serves as a safeguard, mitigating the risk of non-payment for sellers while bolstering their cash flow. Additionally, it empowers manufacturing units to fund their production processes without relying on external loans. Typically, advance payments constitute a predetermined percentage of the overall contract value, with the remaining balance due upon the successful completion or delivery of the contracted goods or services.