An advance payment is money paid before the supplier delivers the corresponding goods or services. It may fund materials, reserve capacity or satisfy a supplier’s credit policy.
How the control works
Limit the amount to a justified need and connect release to a verified supplier, signed order, payment approval and protective terms. Consider a guarantee for material exposure.
| Area | What the record should show |
|---|---|
| Control | Limit the amount to a justified need and connect release to a verified supplier, signed order, payment approval and protective terms. Consider a guarantee for material exposure. |
| Evidence | Keep the supplier verification, contract, pro forma invoice, approval, beneficiary confirmation, payment record and later application to the final invoice. |
| Tradeoff | Advance payment shifts performance and recovery risk to the buyer. A low price does not compensate for paying an unverified or financially weak supplier. |
Evidence buyers should retain
Keep the supplier verification, contract, pro forma invoice, approval, beneficiary confirmation, payment record and later application to the final invoice.
Where the term is misused
Advance payment shifts performance and recovery risk to the buyer. A low price does not compensate for paying an unverified or financially weak supplier.
Related definitions: pro forma invoice, supplier verification, payment terms.
