Legal Definitions - advance payment

An advance payment refers to money paid by one party to another before the goods or services being purchased have been fully delivered or performed. It is essentially a prepayment made in anticipation of a future obligation being met. This payment often serves to secure the transaction, cover initial costs, or provide assurance to the seller or service provider.

Here are some examples to illustrate this concept:

• Example 1: Custom Software Development

  A startup company contracts with a software development firm to build a new mobile application. The contract stipulates that the startup must pay 30% of the total project cost upfront before the development team begins any coding or design work. This initial 30% payment is an advance payment because it is provided to the software firm before any of the agreed-upon software development services have been rendered.

• Example 2: Booking a Vacation Rental

  A family books a beach house for a week-long vacation several months in advance. To confirm the reservation, the rental agency requires a non-refundable deposit equal to one night's stay at the time of booking. This deposit is an advance payment because it is paid long before the family actually occupies the property or uses the rental services.

• Example 3: Professional Retainer Fee

  A small business hires an attorney to represent them in a complex legal matter. The attorney requires the business to pay a retainer fee of $5,000 at the outset of the engagement. This retainer is an advance payment for future legal services, which the attorney will draw against as they perform work on the case. The payment is made before the specific hours of legal work have been completed.