What is an advance?

An advance is an amount of money that is provided prior to the contractual maturity date or prior to delivery of the goods or services for which payment is to be paid. These payments can be structured into a contract or offered to address a specific hardship situation. In some cases, the total amount due will be paid in cash, while in others, part of the money will be offered in cash and part will be paid later.

A common reason for offering an advance is because someone needs the funds owed immediately, even if the person has not yet received them. Many authors receive advances on their work to get money to pay off debts and live while they finish their books. Likewise, it is not uncommon for an insurer to provide part of an agreement upfront to help the customer recover faster. Individuals can also arrange salary advances through their employers to deal with challenging economic circumstances.

With certain types of contracts, an advance payment may be required. People are sometimes asked to prepay for some types of services and it is not uncommon for operators to require prepayment. This aims to minimize losses. By collecting the money in advance, the sender can be sure that the goods will be paid for in full. Advances can also be used to secure an agreement by making it clear that the party with the obligation to pay intends to honor that obligation.

For some types of work, expense advances are provided. People who need to travel or participate in other activities that may cost money for work can receive an advance to cover these expenses. They must obtain receipts and provide a complete report on how the money was spent when they return, along with presentation of any remaining funds. This allows employers to send people to perform tasks without requiring their employees to cover the costs out of pocket.

When an advance is issued, it is usually necessary to sign documentation to indicate how much money was received and the purpose of the payment. If the payment settles an account early, this will be shown in the documentation. On the contrary, if it is the first payment in a series, the documentation will show it and indicate the balance due and when it will be due.