As practice shows, when making various transactions, verbal agreements are not enough. Especially when it comes to the transfer of significant amounts of money. The most commonly used prepayments and advance payments. What is the difference between these legal terms, not everyone knows. But in vain. Because a lot can depend on the wording. That is why it is worth spending a little time to save your own money in the future.
What is an advance?
Before you figure out the difference, you need to understand the concepts. Let's start with the advance payment. This is the sum of money or other property that the debtor transfers to the other party to fulfill obligations.
In simple terms, the advance is transferred in order for the arrangement to begin to be implemented. If the advance is not paid, then the second party has the full right not to proceed with the duties.
If the contractor for some reason refuses to fulfill obligations, the advance payment must be returned in full. The transferred sum of money or property should not remain with the party that does not fulfill obligations.
Advance performs two functions at once. On the one hand, it guarantees the execution of the contract. On the other hand, it confirms the fact that the customer side agrees with the terms of the agreement and will be required to pay the remaining amount.
Knowing what an advance is and an advance payment, what is the difference between these two legal concepts, it will be easy to figure out.
What is prepayment?
This is another term you need to know. This will help to understand the difference between an advance and an advance payment.
As in the previous definition, the essence is that the deposited amount of money guarantees the beginning of the execution of the agreement. By making an advance payment, the customer confirms the fact that he agrees with the terms of the contractor and is ready to start cooperation.
The prepayment also confirms the obligation to pay the remainder of the entire contract amount. And to do this not sometime, but on time.
Another important nuance is that an advance payment must certainly be made before the fulfillment of obligations, and not at the time of fulfillment.
Is advance payment an advance or a deposit?
So, if you turn to the Civil Code, it is easy to find out that the goods must be paid before or after receiving it. If you rephrase it, it becomes clear that the transfer of both money and the object should occur without a large time gap.
Prepayment is an advance made by the buyer before receiving the goods or services. However, in return receives the promise of the contractor to complete the work or deliver the goods in a timely manner.
There is a slight nuance that distinguishes two concepts. So, the advance only partially covers the cost of the contract. However, prepayment, depending on the conditions, may be full.
Tax and accounting often perceive advance payments and prepayments as synonyms. The deposit has a slightly different meaning. Prepayment is, of course, an advance.
Prepayment and advance - what is the difference?
So, finding out the features of each of the above definitions, you can find several features:
- Advance payment and advance payment are made before the start of fulfillment of the obligation, this is described in detail in the contract. This action is performed by the responsible person.
- Advance payment and prepayment can be returned if the contractor for some reason could not cope with the terms of the agreement.
The above features do not make it clear the difference between an advance and an advance payment. In fact, it is absent.The difference is that in economics and jurisprudence they prefer the term “advance”, and in everyday life - “prepayment”. However, in some parameters their essence is the same.
Are there any differences?
What is the difference between advance and prepayment? What is the difference? And does it even exist? So, you must understand that in the case of a successful transaction, no difference is observed.
Advance, deposit, prepayment. What is the difference between these concepts? So, now you know that the advance payment and prepayment are identical. However, the deposit carries a slightly different meaning. The difference becomes apparent and will make a difference if the obligations are not fulfilled or their performance is suddenly terminated.
What happens with an advance if the agreement is not fulfilled? They just return it. The party through whose fault the transaction did not take place does not bear any financial losses. Excluding those situations when the previously signed agreement includes a clause on the presence of fines.
If the transaction did not take place through the fault of the customer or buyer, then the entire amount of the previously transferred deposit remains with the contractor or seller. A similar rule holds true in the opposite direction. If the agreement was not made through the fault of the contractor, he will have to return the full amount of the deposit in double size. This is a significant difference from the advance.
The deposit performs a security function. That is, it obliges both parties to fulfill the contract and provides each of them with guarantees in case of violation of the agreements. That is why it is important to clearly understand the difference between an advance, an advance payment, and a deposit. For some, legal illiteracy results in unpleasant financial losses.
Is it worth doing without documents?
By law, the transfer of prepayment or deposit must be documented. Otherwise, it remains to rely solely on the honesty of the other side. It is curious that in such transactions a greater risk lies with the customer or client, in other words. The seller or contractor, receiving a deposit or an advance payment, can appropriate the transferred sum of money without any consequences. After all, to prove the fact of receiving an advance is very difficult in the absence of relevant documents. When refusing to draw up a written agreement, think carefully about whether you are prepared for such risks.
It is worth noting that the documentation of the transfer of a deposit or prepayment is not at all difficult. An agreement may be made in writing. However, it must contain the correct amount, as well as information about the parties to the transaction. You also need to specify the timing of the fulfillment of obligations and secure the transfer of funds by the signatures of each party. If it is an advance payment, it is allowed to draw up a unilateral receipt from the receiving party.
What to choose?
When concluding a transaction, it is common for every person to doubt. In this case, throwing is associated with a choice between an advance payment, an advance and a deposit. As you remember, there is no fundamental difference between the first two terms. However, a slightly different situation is observed with a deposit. The presence of an agreement is considered confirmation of the contract.
If doubts that the transferred funds are a deposit, then they will be considered in advance with the corresponding consequences. A similar situation is observed if the form of the agreement is violated when making a deposit.
Make no mistake
It is curious that confusion occurs even among realtors. They have the concept of "deposit". However, not everyone understands the true meaning of this term. Often, realtors entrust the deposit with only one function - to confirm the willingness of the buyer to complete real estate transactions. However, in the event of a refusal, they simply return the deposit to him without any consequences. A potential buyer should understand the terms so as not to become hostage to an unpleasant situation.