Deferred payment is one that occurs when we buy a good or provide us with a service on credit, so we make the payment at a later date. That is, a deferral in a payment after making a purchase or acquiring a debt (We will detail with examples later).
Another point to keep in mind is that the payment can be deferred by programming a single disbursement or a series of installments, which must be canceled over time. In the latter case, we must pay special attention to the interest generated.
It should also be noted that the longer the payment period, the more interest will be generated and, therefore, the higher the debtor’s financial expenses.
Also, it is important to note that if the borrower has, at any time, problems paying off his debt, he can negotiate with the creditor. Thus, an alternative could be to schedule more and smaller installments. That is, the debtor would pay his debt in a longer term, but making smaller payments.
It is important to emphasize that the main advantage of deferred payment is that it seeks to prevent the debtor from running out of liquidity in the present. However, as a disadvantage, we can say that it generates interest, so the debtor ends up spending more.
Types of deferred payment
The most relevant types of deferred payment are the following:
- In the case of a credit card, it is said that there is a deferred payment when the user decides that he will cancel his debt by paying several monthly installments. This, instead of making a single payment with a scheduled due date within the next billing period.
- It is also known as a deferred payment on a credit card when the payment, or first installment of the debt, is not canceled within the next billing period, but in the subsequent one or later. That is, there is one or more grace months. Then, the debt acquired in June could be canceled, for example, in September.
- The deferred payment of a check, which is a check that is cashed in the future. That is, on a date after the document was issued.
Deferred payment example
Suppose that Juan has made a purchase with his credit card of a durable good, for example, an electronic device, for 30,000 euros.
Thus, you decide that this amount cannot be paid in a single payment, so you will choose to schedule several monthly installments, specifically, in a six-month period.
What Juan has done is defer the payment of the debt acquired for the purchase of the electronic device. This will generate interest charges, but the advantage is that it will not be undercapitalized in the short term.