Payments

All about down payments and prepayments.

Vacations, the contractor on a major remodel, tickets to an event - consumers in many cases are already used to making down payments or prepaying for a purchase. As a business owner, it offers many advantages. For one, you have financial security. You have the money, or at least part of it, coming in. But there are other reasons to ask customers for a down payment or full payment in advance.

Photo - tim
What is prepayment?

With prepayment, customers pay before they receive the product. Unlike with an iDEAL payment - where customers also pay the entire amount before delivery - with a prepayment, there is a significant amount of time between payment and final delivery.

 

And what is a down payment?

A down payment is actually the same thing; only this time a part of the amount is paid in advance. By law, this cannot be more than 50% of the purchase amount. Down payments are common in remodeling projects. This provides security for the contractor and limits the risk for the consumer should the building project not turn out as hoped.

Note that a down payment is not required by law, and neither is a refund. It depends on what you and your client have agreed, and what is stated in the general conditions. However, if a down payment is refundable, using it does not add that much.

villa-for-you
What is different with us than with a "regular" online store is that almost all transactions are paid in two parts. First a down payment, then the rest. Fortunately, this is easy to set up with Pay.
Sanne ten Voorde Marketing specialist at Villa for You
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Advantages of advance payments for the entrepreneur.
  • Certainty: the money has already arrived and thus the certainty that a customer will also purchase the rest of the product or go along on the booked vacation.
  • Number of defaults decreases: if a product can be paid for afterwards, there is always a chance that the customer will not fulfill this obligation or will do so too late. Prepayment will significantly reduce the chance of this happening.
  • Financing of production costs: if a lot of costs already have to be incurred, it is nice to be able to finance them from the prepaid amount. Prefinancing yourself is then not necessary, or to a lesser extent.
  • Cash flow: by receiving advance payments, the company increases its available cash with which obligations can be better met, which in turn is good for the financial stability of the company.

As a business owner, what should you pay attention to with down payments and prepayments?

It is important to keep a close eye on how you process advance payments and down payments in the accounting records. Make sure that at the end of the complete transaction the administration is still correct. Adjusting afterwards is often difficult.

In accounting, there is a distinction between earned revenue and unearned revenue. Earned income is about products that have already been delivered, but not yet invoiced.Unearned income is about products that have not yet been delivered, but have already been paid for by the customer. In other words, prepayments or down payments. These unearned revenues should be recorded as liabilities or current liabilities on the balance sheet.

Also pay attention to the amount of the down payment. Make a good estimate in advance of the total amount that will be billed. If the down payment ends up being higher than the final invoice amount, a credit invoice must be booked, which in turn creates additional work in the administration.

In addition, a down payment cannot be required. You will have to discuss this clearly with the customer. If you ask for a down payment, make sure it is clear to the customer what the down payment is, and state on the invoices what part of the payment is involved. You can also choose to include the down payment in the terms and conditions.

Senior Carpenter with Tablet

Often the choice of down payment or prepayment depends on a number of factors.

  • The amount. Prepayments or down payments are mostly made for larger transactions.
  • The product. An event can only take place with sufficient participation. The down payment then provides assurance that consumers who pledge will actually come. With custom products, it is also nice to have financial security since they cannot be sold to another customer.
  • Cost. A contractor incurs high costs immediately before delivery can be made.

Down payments and prepayments with Pay.

(Web) stores and other entrepreneurs who choose Pay. as their PSP can also easily use down payments and prepayments.

Every transaction, including down payments or prepayments, comes in basically the same way. The customer pays with the chosen payment method, the transaction is processed by Pay. and visible in the admin panel.With each payment received by Pay. various data about the transaction and the customer also come along. Think about:

  • Amount
  • Status Date / time
  • Payment option used
  • Customer data
  • Webshop name
  • Order description
  • IP addres s

Based on this data, every transaction can be easily identified and administered. This also makes it possible to combine transactions that belong together in the accounting system. And because Pay. is easy to link to many accounting software, it can also be processed quickly and easily in accounting.

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