Advance is a deposit? Is there a difference?

Even professional lawyers sometimes have questions that relate to advance and deposit. What is their difference from each other? What to choose - deposit or advance in a particular situation? It is sometimes worthwhile to think seriously about these issues.

Prepaid expense. Word meaning in dictionaries

Ozhegova:

Advance is a tangible asset or money that is given out on account of wages or payments due to someone.

Efremova:

Advance is financial or material assets that are issued against future payments.

Encyclopedic Dictionary:

Advance is the amount of money or some property value. It is issued on the account of the salary due, forthcoming payments, transfer of property, forthcoming expenses.

What is a deposit?

Article 380 of the Civil Code of the Russian Federation contains the following definition. Deposit - the amount of money that is issued by one party to the other party under the contract. The procedure is carried out to prove the conclusion of contractual obligations, and also ensures their execution.

The amount is used as a sanction in case of non-performance of the contract. The Civil Code of the Russian Federation sets sanctions in 381 articles:

• If the party that gave the deposit does not comply with the terms of the contract, then its amount is not refundable.
• If the contract is not executed due to the fault of the party that received the deposit, then its amount should be returned in double size. The Civil Code does not give a full definition of the advance. But in the legislation there is a definition of relations on advance payments. Advance is a partial or full payment for services or goods that are pre-made.

What is the difference between an advance payment and a deposit?

Unlike the deposit, the advance does not impose obligations on the parties to execute the agreement. Each party has the right to refuse the contract, in this case the amount of prepayment is returned in full. This is their main difference. Also, the agreement on which the advance payment is made may be made orally, and the deposit must be made in writing necessarily.

Thus, the deposit is a completely independent agreement. And it includes 3 functions:

• Payment;
• Security:
• Certifying.

And an advance is an action that has only a payment function.

What to choose?

In Russia and in general in the CIS, the deposit agreement is rarely used. Often accompanies only transactions relating to real estate, as well as major financial transactions. In those cases, if losses may arise due to non-fulfillment of preliminary obligations, it is more reasonable to conclude a deposit agreement.

In today's time, a simplified form of transactions is common . It is the receipt of an advance, in the agreement, which specifies a separate item that has a list of penalties.

Given all that is mentioned above, you can recommend the use of an advance agreement. But you should first obtain guarantees by writing in the contract sanctions for refusing to execute or conclude the main document. And at its discretion to establish the types of fines and their sizes (a certain amount of cash or a convenient interest).