Payment in advance

Advance payment is a purchase method by which the customer delivers a service to the seller. This, in exchange for receiving a good or service in the future.

Payment in advance

That is, prepayment means paying today and receiving the merchandise tomorrow, which implies an obligation on the part of the seller.

Advance payment is the opposite of credit purchase, where the user receives the product today and cancels it in the future.

This modality of advanced buying and selling is typical of some markets. For example, it can occur in the use of transport services. The person pays for a ticket to later get on the city subway.

Similarly, you can pay in advance for a cell phone service. For example, buying a card with a certain balance for calls, text messages and Internet megabytes.

Advantages and disadvantages of advance payment

Among the advantages of paying in advance are:

  • It is convenient for the seller in the sense that it ensures an income to his box.
  • For the buyer, the advantage is that they do not acquire a future debt for which they even have to pay financial expenses (interest).
  • It should be noted that by paying in advance, the buyer could be offered a discount on the sale price. This ends up benefiting both parties. To the consumer because it takes advantage of the reduction of the rate and to the seller because it increases the cash flow that enters the business.

However, there are also disadvantages:

  • The seller needs to gain the trust of the consumer, or have a market monopoly or a dominant position. Otherwise, the user will probably not be willing to make a payment for a good or service for which he does not know if he will be satisfied.
  • For the buyer, as we mentioned above, the downside is risk. It may be that the product disappoints and provides less benefit than expected. To reduce that risk, a refund could be guaranteed, but this is not always the case.