Deferred payment – What it is, definition and concept

The deferred payment is the option that a buyer exercises to be able to settle a purchase or commitment, at a time in the future.

The deferred payment represents a facility for the buyer, since in case he does not have the necessary liquidity to acquire a product or service, the seller agrees that it be delivered in future installments.

Of course, always complying with certain conditions such as payments in certain periods of time and generally paying an interest rate.

Types of deferred payment

The types of deferred payment are classified according to:

  • Payment conditions: Terms agreed between buyer and seller. Which is established in a contract and an invoice is issued in the form of proof of payments and acquisition.
  • Payment method: Determine how payments will be made. For example, in cash, bank transfer, direct debit or with direct charge to a bank account, check, etc.

Advantages of deferred payment

There are benefits for both the buyer and the seller in deferred payment. Those that apply in general are listed below.

  • It is available to a large number of people, who have a bank account.
  • It is a fast form of financing.
  • The buyer begins to satisfy their needs through the product or service even without liquidity.
  • The seller makes the sale of his product or service, which, although it is true that it generates an operation pending collection, also carries out a sale that he might not otherwise achieve.
  • The seller obtains the entirety in different installments. However, in exchange for that wait, you usually get an interest that compensates it. Although there are some cases in which within the conditions of the offer it is mentioned that the payment is without interest. This in order for the buyer to make the final decision to purchase the product or service.
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Disadvantages of deferred payment

There are cons for both buyer and seller to deferred payment. Those that apply in general are listed below.

  • If the buyer does not meet the installment payments, then it implies that the debt grows, in the form of a penalty.
  • If the buyer defaults on his payments, he receives a poor rating as a buyer in the financing records, which reduces the possibility of being authorized for another deferred payment in the future.
  • If the seller does not have the buyer’s default credit, then this could affect their monetary commitments.
  • The deferred payment implies for the buyer a type of costly financing due to the payment of interest. Since these are calculated based on the amount pending payment.
  • In some cases there is a penalty that must be paid in exchange for advancing payments to reduce the interest payment. In other words, it is a penalty for early repayment.

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