What is a Deferred Payment?

In a deferred payment situation, one is allowed to start making the required payments after a fixed period of time agreed to by both the creditor and the borrower.

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How Does a Deferred Payment Work?

A Deferred Payment is made in the future at some point. Deferred payment is used in different situations. The retail market often opts for deferred payment arrangements. Here, a retailer buys products with a promise to pay on the predetermined future date. For example, X procures a few products from Y on June 1. Both X and Y agree that Y will begin making payments after 60 days of the shipment of the product. Some lease agreements might have the provision of deferred payment. In such scenarios the tenants do not need to pay any rent for the initial 3-4 months. Then, they pay more rent than the market rate when the balance is due. The terms of a deferred payment arrangement are always mutually agreed upon by the two parties involved in the transaction. In accounting, the firm must keep track of deferred payments as “accounts payable” or “accounts receivable”.