Why advance payment matters to a first-time founder
Advance payments can fund materials, reserve capacity and reduce the seller’s risk of not being paid. But the buyer then risks paying for work that is late or never delivered. Link each payment to clear deliverables, evidence and refund rights. Accounting also differs depending on who pays.
Examples of advance payment
A customer pays a design studio S$15,000 before a three-month project starts. Under the relevant accounting rules, the studio records the cash and a liability for work it still owes, not immediate revenue. It records revenue as it delivers the promised services.
Common misunderstanding
Receiving cash early does not mean you have earned revenue. Paying early does not always create an immediate expense either. The amount may stay as a liability for the seller or a prepaid asset for the buyer until delivery. Local law may also treat deposits, retainers and advances differently.
When to use it
Use advance payments when custom work, limited capacity, customer credit risk or large upfront costs justify them. Put the amount, milestone, tax treatment, cancellation rights, security and refund terms in writing. Get local legal, tax and accounting advice for major cross-border or consumer contracts.