What is the difference between a deposit and an advance payment?
When concluding any contracts, a distinction should be made between a deposit and an advance payment. Why? Both forms are used when concluding preliminary contracts for the purchase and sale of real estate and more.
How do they differ??
The deposit is specified in Article 394 of the Civil Code, which states that:
- serves as compensation and is lost upon withdrawal from the contract,
- it should be transferred in cash, by bank transfer when signing the preliminary contract and be confirmed,
- A good practice is a 10% deposit.
394 of the Civil Code
§ 1. In the absence of a different contractual provision or custom, a deposit given at the conclusion of the contract means that in the event of failure to perform the contract by one of the parties, the other party may withdraw from the contract without setting an additional period and keep the deposit received, and if it was given by the party itself, it may demand twice as much.
§ 2. In the event of performance of the contract, the deposit is included in the performance of the party that gave it; if it is not possible to pass, the deposit will be refunded.
§ 3. In the event of termination of the contract, the deposit should be returned and the obligation to pay twice the amount is waived. The same applies to cases where non-performance of the contract occurred as a result of circumstances for which neither party is responsible or for which both parties are responsible..
Advance payment has no definition in the Civil Code.
The advance payment does not have a compensation function, which means that, unlike a deposit, it is refundable in the event of non-performance of the preliminary agreement by one of the parties.
The advance payment is always refundable in nominal value. In a preliminary agreement, the advance payment may constitute up to 100% of the transaction price.
Remember to obtain payment confirmation regardless of whether you will pay an advance payment or a deposit!
The rule is very simple - you only give money if you have a contract and a payment receipt. It is common for an advance payment to be made without any agreement or confirmation. This situation happens much more often than you think. To put it bluntly, the use of advance payments may turn out to be sterile because the parties have no rigor in implementing the provisions of the preliminary agreement. Advance payments are often used in correlation between the investor and the contractor.
Remember, even in the case of small amounts, it is worth introducing good habits by using contracts with a deposit and confirmation of payment.
The most important thing is that you choose the appropriate transaction security. We hope that after reading this article you will have no doubts.