Deferred Payments

Written by Jacey Harmon
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A deferred payment is defined as a payment that is being made over time to pay off a debt. Since the debt is paid over time, interest is typically applied to the balance of the debt. Both individuals and businesses utilize deferred payments to buy and sell a variety of products and services. Big ticket items like property and equipment are typically bought using deferred payments. Anybody that has a credit card is using a deferred payment to pay for whatever is on the credit card.

Insurance companies utilize deferred payments to settle large claims. Businesses can offer deferred payments to consumers to entice them to purchase products they couldn't otherwise afford. Banks capitalize on deferred payments by loaning out money with a wide variety of loans. Many businesses are using deferred payments to offer payday loans and post-dated check cashing services. Some lottery winners choose deferred payments instead of a lump sum payment.

The Industry of Purchasing Deferred Payments

A large industry has sprung up that buys deferred payment debt. A business will offer a percentage of the debt immediately in exchange for the future payments. The percentage difference between the payments and offered sum will vary from buyer to buyer. Economic conditions will also play a role in the value of deferred payments.

Businesses will consider selling deferred payment debt to gain access to immediate working capital. The lack of working capital is the number one reason why businesses fail. Selling debt is a good source of capital that does not involve hassles common with other forms of raising capital. Individuals will often sell their debt to third parties to receive immediate cash. Better investments, medical emergencies and college funding are all reasons why individuals consider selling their deferred payments.


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