Deferred payment is an agreement where a debt can be paid in the future, commonly used as a sales tool. Companies use a qualification process and may charge interest if payments are not made on time. An example is a six-month deferred payment plan with no interest for the first six months.
A deferred payment is an agreement in which a debt does not have to be paid until some time in the future. Debt can be created when a person takes out a loan, for example, or buys a good or service. The payment of the loan, good or service can be deferred for a certain period of time, depending on the agreement. In some cases, full payment must be made by a certain date, and in other cases, multiple smaller payments may be made until the full amount has been paid. Depending on the specific agreement, interest may be added to the amount due beginning immediately or after a certain period of time, or no interest may be added.
common sales tool
The use of deferred payment plans is one of the most common sales and marketing tools used by businesses. Essentially, the underlying concept is that customers can buy now and pay later. When a customer is unable to pay for the purchase immediately, but has a reasonable expectation of being able to pay in full by a certain date in the future, a deferred payment plan makes sense for both the consumer and the seller. Some companies offer these plans only to preferred customers, but others offer them to everyone.
Qualification Process
Companies that extend deferred payment options to customers typically use some type of qualification process. For example, a customer may have a long-standing relationship with the seller and have an excellent payment history. New customers may have to pass credit checks and other evaluations to make sure they can meet all the requirements of their payment agreements. In both cases, it is not unusual for the deferred payment plan to include no interest charges if the balance is paid according to the terms of the plan. However, if a buyer fails to make payments as specified in the agreement, the seller could begin applying interest charges to the outstanding balance.
Deferred Payment Plan Example
A common deferred payment plan is one in which the customer does not need to make any payment and is not charged any interest for the first six months after purchase. After six months, the customer could either pay the original amount in full or start making smaller payments. If he or she chooses to make smaller payments each month, then interest will generally add until the debt is paid in full. For example, a person who defers payment when buying a piece of furniture that costs $600 US dollars (USD) could wait six months, then pay the full $600 USD or pay $50 USD, plus interest, each month for the next 12 months.
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