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Prepayment
A prepayment is a payment made in advance for goods or services that will be received in the future. It's a common practice in many industries, especially in cases where there is a high level of trust between the parties involved. For example, a company might prepay for inventory from a supplier, or a customer might prepay for a subscription service.
There are several benefits to prepayments, including:
- Ensuring a steady cash flow for the recipient
- Reducing administrative costs and paperwork
- Providing a discount for the payer, as they often receive a lower price for making the payment in advance
Prepayments can also help to build stronger relationships between parties, as they demonstrate a level of trust and commitment to the ongoing business relationship.