Deferred Payment – what is it?
Deferred Payment is a form of payment in which payment for a purchased good or service is deferred to a later date, specified in the contract. This type of solution is used in both B2B (Business to Business) and consumer relationships, giving the buyer additional time to settle the amount due, which can facilitate liquidity management. Deferred payments are particularly useful in situations where the customer needs more time to raise funds or is waiting for receipts from other sources.
Deferred payment can take a variety of forms, including deferred invoicing with a specific payment date, financing purchases in installments or using payment services that allow for later payment. An example of the latter is the “Buy Now, Pay Later” (BNPL) model, which is becoming increasingly popular in the e-commerce industry. Deferred payments are beneficial for buyers because they allow flexible budget management, but also for sellers, who can attract more customers by offering convenient payment terms.
With deferred payment, it is important for both parties to establish clear terms, such as the due date, any interest for late payment and the consequences of non-payment. This type of agreement can help build trust between business partners and increase sales by offering greater flexibility. However, deferred payment also involves risks for the seller, as there is a possibility that the buyer will not pay on time or at all. That’s why additional security, such as bank guarantees or accounts receivable insurance, is often used.
Frequently asked questions
1. What is deferred payment?
Deferred Payment is a deferred form of payment in which payment for a purchased good or service is postponed to a later date, giving the buyer additional time to settle the amount due.
2. What are the benefits of deferred payment?
Deferred payment allows the buyer to manage his budget flexibly and gives him time to raise funds. It is also beneficial for sellers, who can attract more customers through flexible payment terms.
3. What are the risks of deferred payment?
The risk of deferred payment is the possibility that the buyer may not pay the amount due by the agreed date, which can affect the seller’s liquidity. To minimize this risk, various forms of collateral are used, such as bank guarantees or receivables insurance.
4. What are examples of deferred payment?
Examples of deferred payment include deferred invoicing with a fixed payment date, installment purchases and the “buy now, pay later” (BNPL) model, which is popular in e-commerce.
