Down payments are used for short or medium-term financing. Generally the vendor or manufacturer does not have to pay interest on the down payment. In some lines of business, it is common to make a down payment if a manufacturer is not able to finance the production of goods alone because of a long production period, for example. Down payments are generally made before production begins or after partial completion.

Down payments must not be balanced with other receivables or payables and must be displayed separately on the balance sheet. A receivable or payable results from the delivery of a tangible asset or the performance of a service.

On the balance sheet, down payments made are displayed on the assets side and down payments received on the liabilities side. Down payments made are further divided, depending on whether they are:

• Down payments on tangible fixed assets

• Down payments on intangible fixed assets

• Down payments on inventory stocks

• General down payments.

Once you have received the goods or services for which you made a down payment, you need to clear this payment for the final settlement either manually or using the payment program. The down payment must no longer be displayed as such.