Deferred payment and its benefits

What is Deferred Payment?

Have you ever made a payment contract such that you received goods or services without making an immediate payment? If yes, and suppose you took some significant time before you were able to make the payment for what you initially received; then this delayed payment is known as deferred payment.

By definition, deferred payment is a payment made in the future after a buyer receives goods and services. It is the “buy now, pay later” type of transaction.

According to the seller, the money yet to be received after the supply of goods or services is called accrued revenue or unrealized revenue or accrued assets.

According to the buyer, the money yet to be paid after the delivery of goods or services is called an accrued expense. For instance, a company that owes employees salary is said to have an accrued expense. 

Deferred payments are referred to accrued revenue from the perspective of the seller.

From the perspective of the buyer, deferred payment is referred to as accrued expense.

Note: A prepayment is a likely reverse of deferred payment in the sense that after the buyer makes payment, he or she only gets to enjoy whatever had been paid for after some significant time had elapse. Just think of it as "paying in advance". An example is when a tenant pays in advance to a landlord for an apartment yet to be used.

Having a good understanding of deferred payment is important to accountants because they may be utilized in valuing an asset on a company’s record.

Deferred payment will have positive outcomes in a society if properly implemented. Below are some advantages of deferred payment

Education

A student who is financially unstable may apply for a deferred payment scheme which comes in a variety of forms; for instance, the student may be allowed to conclude his education for free and is only permitted to start making payments after such student secures a job. Deferred payment programs have presented an opportunity to the children of the financially unstable to successfully complete their tertiary education rather than been dropouts.

Agriculture

Farmers can receive a non-interest loan to boost their agricultural activities. Some may use this money to buy quality seeds, fertilizer, and agricultural machinery. They pay back from the profit that had been made. A country may boost its export of agricultural produce in this way inasmuch that the necessary conditions are already in place.

Housing

People are given the opportunities to buy landed properties while spreading its payment over a period of time. During, this time, the buyer acquires the property and maximizes it for whatever his or her intentions are. It is important to know that the buyer may pay some additional interest during this process for the time duration.

Entrepreneurs

For entrepreneurs with a great business vision but lack the capital to implement it, going through the deferred payment route is one of the best alternatives. We have many financial institutions that are willing to lend out money to their customers over a period of time without any interest rate. Some persons have become millionaires through this very process.