What does Payment in Advance Mean?

For every entrepreneur who runs an online shop, there are a few essential aspects to consider. Your range of payment methods for the customer plays a particularly important role. For you as a retailer, the focus must of course be on security. For this reason, the option to pay in advance should of course not be missing. But what does the term prepayment actually mean?

What does prepayment mean?

If you offer or require the payment option in advance, then a buyer has to pay you the money for an ordered product or service in advance . Only when you have received the invoice amount do you send the goods to the customer. In this way, you can protect yourself against payment defaults by paying in advance . For you there is a certain degree of security through prepayment, but for the customer this payment option is associated with risks. It is therefore very common for customers to cancel a purchase in the online shop.

What types of prepayment are there?

The sales law in the BGB specifies different types of payment for sales contracts. For example, it is described in Section 433 of the German Civil Code that a step-by-step payment is provided for purchase contracts. This means that you, as the seller, hand over an object to the buyer and the buyer pays you for it at the same time. In the case of prepayment, on the other hand, this service is postponed step by step at the expense of the buyer. There are a few types of prepayment that you should be aware of.

Type of advance payment description
Legally permissible advance payment The legally permissible advance payment can usually be found for vacation trips. The tour operator may insist on payment in advance. However, a statutory travel insurance certificate is required here. In this case, the advance payment may amount to up to 20 percent. The legally permissible advance payment can also be found at the lawyer. This is also entitled to request advance payment.
Contractually stipulated advance payment This form of prepayment can mainly be found in online shops or when buying on the Internet. This form is often the only form of payment, especially for new customers. The ordered goods are only made ready for dispatch after receipt of the contractually stipulated advance payment. Another form of contractually stipulated advance payment can also be found with prepaid cell phones. In order to be able to use the card, a customer must first load it accordingly.
Prepayment in foreign trade The advance payment can also be found very often in foreign trade. The buyer, in this case the importer, undertakes to pay the exporter in full or as a deposit. This prepayment is often necessary because the exporter needs the money to manufacture the goods. In order to secure something as an importer, the importer often requires a deposit guarantee from a bank in return for payment in advance.

Where is prepayment used?

As already described above, prepayment is mainly used in foreign trade and plays a very important role there. Especially in cases in which an exporter does not produce in stock, he may need to pay in advance. First and foremost, these are smaller entrepreneurs who are dependent on prepayment in order to be able to manufacture the goods ordered. For the buyer, i.e. the importer, the prepayment is a clear financial risk . In order to get some protection, banks are often involved in such a foreign trade transaction. The bank gives the exporter a payment guarantee away. However, it can also be the case that the amount paid in advance is handed over to the bank as a trustee until the goods have been handed over.

Numerous online shops also only sell against prepayment. This is very often the case with new customers . As a trader, you want to prevent financial losses. This can happen if you send the goods but the buyer doesn’t pay. However, caution is always required when an online shop offers prepayment as the only payment option. Here the buyer should always be careful.

Prepayment is also required if a vacation trip is booked. As a rule, this is a down payment , but it does not include the entire travel price. Services provided by a lawyer are also subject to prepayment in many cases. This applies either to partial services provided by a lawyer or to an entire procedure. Prepayment is not permitted when using notarial services or medical services. The advance payment must not be confused with payments on account, as they are especially common in the construction industry.

When does a contract come about?

Sections 145 and 147 BGB describe that a contract comes about through offer and acceptance . For you as a retailer, however, there are two alternatives.

  • The presentation of your goods in your online shop is non-binding. If the customer places an order, this is to become a binding offer and you can confirm it by email, for example.
  • The presentation of your goods in the shop already represents a binding offer. If the customer orders, it is accepted by him.

When it comes to prepayment, but also with payment methods such as Sofort├╝berweisung , PayPal, etc., the contract is concluded when the customer pays. At this point, both sides undertake to adhere to the agreements in the terms and conditions. The question for the customer “When to pay” does not arise here with prepayment. In order to receive his goods, he has to pay immediately. In the case of the frequently asked question “When will the invoice come?”, The seller usually attaches it to the shipment of the ordered goods.

Payment in Advance