Advance payment
Payment is the transfer between parties of some form of value (such as funds, services, assets) in an agreed exchange. This can be for goods, services or to fulfil a legal obligation such as a debt. The most common form of payment involves money although it can also take the form of other benefits, and is typically preceded by a bill or invoice specifying the amount due.
An advance payment, sometimes referred to as a down payment, or ex gratis payment, is when part of a contractual sum is paid in advance of the exchange, i.e. before any work has been done or goods supplied. Advance payments are typically recorded as prepaid expenses by the payer and recorded as assets on the balance sheet.
On a construction project, a contractor may request an advance payment to help them meet significant start up or procurement costs that may have to be incurred before construction begins. For example, where they have had to purchase high-value plant, equipment or materials specifically for the project. In these instances, the client should require an advanced payment bond. This secures the payment against default by the contractor.
For more information, see Advance payment bond.
It is also sometimes necessary for the client to pay for items even though they remain ‘off-site’, for example, where a contractor has made a large payment for plant or materials that have yet to be delivered to site, or if the client wishes to ‘reserve’ key items in order to protect the programme. However, this does put the client at risk, for example if the contractor or supplier becomes insolvent and the items are then not delivered, even though payment has been made.
Several mechanisms are available to protect the client, however, none of these is fool proof. Judgement is necessary to assess the risk to the project, or the potential loss to the client versus the benefit of greater certainty of supply.
For example, a ‘vesting certificate’ or ‘certificate of vesting’ may be required from the contractor (or sub-contractors or suppliers), certifying that ownership of goods, plant or materials listed in a schedule will transfer from one party to the other upon payment and confirming that they will be will be properly identified, separately stored, insured and are free from encumbrances (such as retention of title).
For more information see: Off site materials.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
The benefits of writing articles for your organisation
How to create a profile for your organisation and publish for free.
No Falls Week. The importance of safe working at height
What to expect and what is on offer to avoid accidents.
Scottish Government action to reach net-zero targets
Retrofit expert group highlight critical actions needed.
A forward thinking, inclusive global community of members.
From engineered product life-spans, to their extension.
Circular economy in the built environment
A brief description from 2021. Where are we now?
Mental Health Awareness Week with ABS
Architects Benevolent Society programme of activity.
CLC publishes domestic retrofit competency framework
Roadmap of Skills for net zero.
May 13-19: Moving more for our mental health.
Understanding is key to conservation.
Open industry engagement survey seeks responses
Institutions and the importance of engagement.
National Retrofit Hub unveils new guide
Digital Building Logbooks and Retrofit: An Introduction.
Enhancing construction site reporting efficiency
Through digitisation and the digital revolution.
Noise in the built environment
BSRIA guide TG 20/2021.
17,000 people suffer conditions as a result of exposure to excessive noise at work.
Turning down the noise: Auditory health
A pervasive risk with far-reaching consequences.
Getting the most out of heat pumps and heating
How heat pumps work and how they work best.
Electrotechnical excellence, now open for entries.