What does prepayment mean?
Prepayment means payment made before it is normally due. It is used for rent, loans, insurance, utilities, membership plans, purchases, and other arrangements in which money is collected before goods or services are supplied. In everyday business contexts, prepayment can give the customer a discount and give the provider better cash flow, but it also means the customer bears more risk if the transaction is later cancelled or the service is not delivered. The related adjective or participial use, prepaid, commonly describes an item or expense that has already been paid for. By contrast, a prepayment is the payment itself or the arrangement requiring advance payment. The word is especially useful in contracts and financial discussions because it identifies both the timing and the practical conditions of a payment without requiring further explanation.
nounPayment made in advance, before goods or services are provided or before an obligation falls due. The term is also used attributively to describe an arrangement or discount involving advance payment.
- Payment made before goods are supplied, services are provided, or an amount becomes due.
- An arrangement or condition requiring payment in advance, as in a prepayment plan or prepayment discount.
"The landlord requires a month's rent as prepayment before the tenancy begins."
"The car dealership offers a discount for prepayment."
"Early repayment of the loan eliminated the remaining prepayment charge."
Plural is used for separate advance payments, instalments, or transactions.
"The company recorded several prepayments before the service period began."
Prepayment shifts the risk of nonpayment to the customer, which is why contracts often make it clear when an advance payment is nonrefundable.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Where does prepayment come from?
Prepayment was formed in the 19th century from the prefix pre-, meaning “before,” and payment. The prefix comes from Latin prae, “before,” and is also reflected in related English words such as prepaid, preamble, prelude, and precursor. The compound follows the standard English pattern of combining a prefix with a noun to describe an action or arrangement occurring earlier than the ordinary or expected time.
How prepayment is actually used
The term is common in business, finance, contracts, insurance, and utility billing. It may carry a practical implication that payment is required before the seller or service provider has performed its part of the arrangement.
Easily confused with prepayment
Prepayment is the noun for an advance payment, while prepaid is the adjective or participle describing something paid for in advance.