How does an advance differ from an advance payment?
The question of what the legal difference is between an advance and an advance payment is debatable, and legal scholars have different approaches to resolving it.
One of the common points of view is the complete identification of these concepts, since both of them assume that the customer, buyer or recipient of a service, work or product pays a certain amount to the seller, performer or contractor before he begins to fulfill his obligations under the contract. That is, both of these categories assume that the supplier of the goods, work or service will receive money before fulfilling the obligations. Such payment prior to performance can be full or partial; full prepayment is payment to the contractor of the entire amount under the contract before he fulfills his obligations. This concept corresponds to the concept of one hundred percent advance payment.
However, there are a number of points of view according to which these two categories differ from each other. Since the difference between an advance and a prepayment is not fixed by law, there are several approaches to how these categories differ from each other:
- The first point of view assumes that an advance is a type of advance payment. Its supporters believe that two forms of advance payment should be distinguished: advance payment and deposit. The difference between them is that if the customer transfers a deposit to the supplier of a product, work or service, but he does not fulfill his obligations under the contract, he returns the deposit in double amount. There is no such rule regarding advances;
- another point of view goes back to the concept of the legal nature of phenomena, in accordance with it, an advance is a specific transferred amount, and an advance payment is a determination of the form of payment;
- despite the fact that in ordinary business practice it is not always clear how to understand that this is an advance payment or an advance payment, and these terms are considered synonymous, there are court decisions in which the court makes distinctions between them, and these differences serve as the basis for accepting one or the other another decision. For example, when making a decision in case No. A40-34066/2009, the Federal Antimonopoly Service of the Moscow District refused to accrue interest on the amount of the advance under the then current version of Article 395 of the Civil Code of the Russian Federation. The refusal is based on the fact that in the case of an advance, if the supplier fails to fulfill its obligations, its amount is subject to return without interest, in contrast to the advance payment, on which it would be lawful to charge interest. That is, the court found that the legal consequences of failure to fulfill obligations are different.
What is prepayment and why is it needed?
Prepayment is partial or full payment for services and goods. Prepayment is needed not only by companies providing services, but also by clients themselves. Today, every client values his time and money, therefore, when visiting a beauty salon, he wants the time he has booked not to be given to another client. Therefore, by making an advance payment for services, the client protects himself from possible force majeure circumstances.
The company providing services, with the help of prepayment, minimizes the possible risk of being left without making a profit.
In the commodity business, everything is much simpler: the client gives money and receives the goods.
When it comes to services, things are a little more complicated. It is psychologically difficult for clients to make an advance payment for a product that they have not yet received. And for an entrepreneur providing services, it is also risky to perform work that may not be paid. Both sides are at risk.
For example, a photographer or videographer can film the entire wedding day, but the bride simply doesn’t like the photos and won’t pay for them. It turns out that the photographer worked for free, since the bride will receive the photographs in electronic form in any case. The bride herself risks, when ordering the services of a photographer for her wedding, not receiving photographs for some reason or receiving low-quality photographs.
Therefore, answering the question why prepayment is needed, it should be noted that prepayment reduces the risks of both parties.
If you look at the legislation, prepayment is defined as a type of obligation associated with the purchase and sale of a product or service. Prepayment is the receipt by the contractor of a pre-agreed amount for the services that he will perform.
Types of prepayment
— Full prepayment involves payment of the full cost of the contract.
— Partial prepayment is an advance payment of a predetermined amount for goods or services.
— Revolving prepayment - in essence, this is a constant payment that occurs in cases where the supply of goods or services occurs regularly over a long period of time
If a company enters into an agreement with a client, then it is important to stipulate in the agreement the return of funds in the event of non-fulfillment or improper fulfillment of the terms of the agreement. Failure to fulfill obligations on both sides results in the return of the advance payment.
In general, contractual relations should always be governed by a written agreement in order to avoid situations that require litigation.
But many novice entrepreneurs who are just starting to provide services are wondering how to work without advance payment, and do I have the right to take an advance payment?
Use cash register when crediting and returning an advance
From 07/01/2019, those who are required to use online cash registers must punch checks for offset and return of advances to cash registers.
Previously, the Federal Tax Service developed detailed guidelines for issuing checks for different forms of advance:
- generation of checks for prepayment for own goods, offset of prepayment, provision of a loan to pay for goods and when repaying a loan to pay for goods (letter of the Federal Tax Service of the Russian Federation dated February 20, 2019 No. ED-4-20 / [email protected] );
- generation of receipts for the sale of goods using a gift card (letter of the Federal Tax Service 07/03/2018 No. ED-4-20 / [email protected] ).
In this material we will not dwell in detail on the general rules for making advances at the online cash register. Let's pay attention to technical aspects.
Let us only remind you that if the buyer did not receive the goods (service) at the time of payment, then both facts must be recorded: separate receipts must be issued for both the delivery of the goods (service) and for payment. This rule applies to any sales and forms of payment, including online.
Having received an advance payment from the buyer, do not forget to calculate and pay VAT. ConsultantPlus experts explained in detail how to do this correctly. Get trial access to the K+ system and upgrade to the Ready Solution for free.
Nuances of online cash register credits for advances and prepayments over the Internet
The procedure for punching online cash register receipts when prepaying for goods or making an advance payment is technically the same.
When trading via the Internet, the question of transferring punched checks to the buyer often arises. The law does not provide exceptions to the seller's obligation to issue a check. Therefore, checks must be handed over to the buyer twice.
The prepayment receipt must be sent to the client electronically if the buyer’s contact information is available, or a paper receipt must be included in the package with the goods if there is no information.
When offsetting an advance (prepayment), sellers have the right to send a cash register receipt to buyers only in electronic form without issuing paper cash receipts.
You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.
Advance payment according to 44-FZ
Since the customer applies advance payment under 44-FZ at his own discretion, the decision on prepayment should be made based on its feasibility, as well as budget limitations. If the customer is ready to pay an advance, then he must place information about the advance in the procurement notice (Part 12, Article 42 of Federal Law No. 44-FZ).
The amount of the prepayment affects the size of the contract performance security (CEC) - the larger the advance payment, the greater the CEC. The OIC advance amount should not be less than the amount.
According to Part 13 of Article 34 of Federal Law No. 44-FZ, the terms of advance payment, including the amount and timing of payment, must be specified in the contract. The absence of deadlines for the payment of advance payments in the contract will be a violation. To avoid such a mistake, you need to prepare for trading in advance. You can contact specialists who will help you participate at all stages of the tender. This will avoid controversial situations.
Use of cash register systems when crediting advance payments and prepayments at an online cash register
The second check will need to be issued when the buyer has received what he paid for in advance. Here you also need to use the “calculation method attribute” attribute.
Important! When registering an advance or prepayment at an online checkout, you should always indicate “full payment” in the “payment method indication” column. Otherwise, if the final payment amount differs from the preliminary payment, problems will arise with making additional payments in other ways.
Further, in the settlement amount for the check, it is indicated that the payment was not made in cash or non-cash, but by offsetting an advance (prepayment). When you issue a check, the online cash register will understand that you need to write off the prepayment made to it for the completed shipment.
What to pay attention to
When specifying an advance payment in an agreement under 44-FZ, it is necessary to accurately indicate the amount of the advance - there is no need to use minimum and maximum intervals when determining the amount.
In addition, the requirements should not be correlated with the purposes of using the advance payment - this may be regarded as a violation of 44-FZ. This is stated in Letter of the Treasury No. 07-04-05/09-319 dated May 19, 2015.
If the contract requires the contractor to complete the work in stages, the contract must indicate the amount of the advance as a percentage of the total cost of the work (goods) for each stage. This is stated in paragraph 1 of Part 13 of Art. 34 of Federal Law No. 44-FZ.
You can formulate the terms of the advance in free form. Example of wording for full prepayment:
Example of wording for partial prepayment:
Advance payment period for the apartment
The advance period is the time interval between the date of payment of the advance and the moment of conclusion of the transaction (signing of the purchase and sale agreement).
For how long should the advance payment be made? The parties must resolve this issue individually.
The timing depends on the readiness of the apartment for sale, as well as on the speed of paperwork. If the Buyer has the required amount of money on hand, and the Seller has all the documentation ready, the advance payment period can be two weeks. It’s another matter if the Buyer plans to purchase an apartment using mortgage funds. In this situation, even a month may not be enough.
It is in the interests of the Buyer to prescribe longer periods. Therefore, even if at first glance it seems that two weeks is enough for registration, there is no need to rush - it is better to indicate the deadline with a margin. This is because if the Buyer does not sign the sales contract within the stipulated time, he will lose the entire down payment amount.
In an alternative transaction, the Buyer must make sure that the Seller will have time to find a suitable option within the agreed period. If an “alternative” is not found, the deal may fall through.
Ideally, the Seller should find several suitable apartments before receiving an advance.
Advance amount for the apartment
The seller will always demand more. In cases where the selling party believes that the advance amount is too small, the Buyer must confidently justify its decision. The law does not establish the exact amount of the advance payment. But in practice it does not exceed 1-2% of the cost of the apartment.
It is important to remember that the Buyer’s intentions are confirmed not by the amount of the advance payment, but by the very fact of making an advance payment.
Advance payment according to 223-FZ
Federal Law No. 223-FZ does not contain rules directly related to advances. In this regard, customers should use the provisions of the Civil Code of the Russian Federation as a regulatory framework.
As a rule, the advance payment procedure is set out by the customer in the Procurement Regulations, as well as in the draft agreement with the supplier. When bidding under 223-FZ, customers are often assessed based on the amount of the advance payment.
As in the case of purchases under 44-FZ, the size of the advance directly affects the OIC. If the supplier receives an advance payment from the customer, the contract security is equivalent to the advance payment and cannot be less than the advance payment.
There are no restrictions on the amount of prepayment by law, however, the minimum amount of the advance must be at least 30% of the NMCC (Part 17 of the Decree of the Government of the Russian Federation of December 11, 2014 No. 1352).
