Even professional lawyers sometimes have questions that concern advance payments and deposits. What is their difference from each other? What to choose - a deposit or an advance in a specific situation? These issues are sometimes worth seriously considering.
Prepaid expense. The meaning of the word in dictionaries
Ozhegova:
An advance represents material assets or money that is issued against salary or payments due to someone.
Efremova:
An advance is financial or material assets that are issued against future payments.
Encyclopedic Dictionary:
An advance is a sum of money or some property value. It is issued on account of due salaries, upcoming payments, transfer of property, upcoming expenses.
What is a deposit?
Article 380 of the Civil Code of the Russian Federation contains the following definition. Deposit - the amount of money that is issued by one party to the other party under the contract. The procedure is carried out in evidence of the conclusion of contractual obligations, and also ensures their implementation.
The amount is used as a sanction in case of non-performance of the contract. The Civil Code of the Russian Federation establishes sanctions in article 381:
- If the party that provided the deposit does not fulfill the terms of the contract, then its amount is non-refundable.
- If the contract is not executed due to the fault of the party that received the deposit, then its amount must be returned in half. The Civil Code does not provide a full definition of an advance. But in the legislation there is a definition of relations on advance payments. An advance is a partial or full payment for services or goods, which is carried out in advance.
What is the difference between an advance and a deposit?
Unlike a deposit, an advance does not impose obligations on the parties to fulfill the agreement. Each party has the right to withdraw from the contract, in this case the amount of the advance payment is returned in full. This is their main difference. Also, the contract under which the advance payment is made can be concluded orally, and the deposit is made in writing necessarily.
Thus, a deposit is a completely independent agreement. And it contains 3 functions:
- billing
- security:
- certifying.
And an advance is an action that carries exclusively a payment function.
What to choose?
In Russia and in the CIS as a whole, a deposit agreement is rarely used. Often accompanies only transactions related to real estate, as well as major financial transactions.
In cases where losses may arise in case of failure to fulfill preliminary obligations, it is more reasonable to conclude a deposit agreement.
A simplified form of transactions is common today . It represents an advance payment, in the agreement on which a separate clause is indicated having a list of penalties.
Given all of the above, you can recommend the use of an advance agreement. But you should first obtain guarantees by writing in the contract sanctions for refusing to execute or conclude the main document. And at your discretion, establish the types of fines and their sizes (a certain amount of cash or a convenient percentage).