What is a deferred payment account?
A deferred payment account is a form of financing that allows you to postpone the payment date for goods or services you have purchased. It is a type of trade credit in which the seller or financial institution allows the buyer to make the payment at a later date, usually after a specified period (e.g. 30, 60, 90 days). This type of solution allows companies to manage their cash flows flexibly because they can use the purchased goods before making full payment. This is often used in international trade and in B2B relationships, where long payment terms are standard.
Frequently asked questions (FAQ)
1. How does a deferred account work?
A deferred account is a form of trade credit in which the buyer receives goods or services with a deferred payment term. The seller issues an invoice specifying the payment term, which can be, for example, 30 days (Net 30). The buyer is obliged to settle the payment only after the agreed deadline. In some cases, if the payment is not made on time, the seller may charge additional fees or interest.
2. What are the advantages of a deferred account?
For the buyer, a deferred account is a convenient liquidity management tool, as it avoids an immediate outlay. This allows a company to access goods or services without committing its own capital right away, enabling it to make more efficient use of available funds, for example by investing them in other areas of the business. The seller benefits from increased sales due to the flexible payment terms, which attracts more customers, especially in B2B relationships. In addition, the possibility of charging interest or additional fees for late payments generates additional income.
3. What are the risks associated with a deferred account?
There are certain risks associated with this form of financing. First of all, the seller may bear the risk of buyer insolvency, which can lead to financial bottlenecks and liquidity problems. In addition, until payment is made, the seller is de facto crediting his customer, which means a loss of capital for a certain period of time. The buyer, on the other hand, must expect to be charged interest in the event of late payment, which can generate additional costs.
4. In which industries is the deferred account used?
Deferred payment is a popular solution in various sectors of the economy. In wholesale, shops and wholesalers use this method to buy goods on credit and sell them before settling their liabilities. In the manufacturing and industrial sectors, companies order raw materials and supplies with deferred payment, which allows them to optimize operating costs. In B2B service sectors such as marketing, technology and construction, companies often offer their business customers flexible payment terms, enabling them to finance services conveniently.
5. What are the alternatives to a deferred account?
An alternative to a deferred account can be trade credit, a mechanism in which the seller independently finances the deferment of payment for their customer. Another option is factoring, where the seller can sell their invoices to a factor and get cash faster. When purchasing equipment or machinery, companies can use financial leasing, which allows them to pay off the value of the item in installments. However, deferred invoicing remains an effective financing method that enables companies to improve their liquidity while increasing sales and investment opportunities in B2B relationships.
