prepay

Prepay refers to the payment for goods or services before they are received or consumed, contrasting with postpaid arrangements in which payment occurs after use. The term covers consumer and business practices in which funds are committed upfront to secure access, goods, or capacity.

Common implementations include prepaid cards and mobile or telecom plans, where value is loaded onto an account before services are used; prepaid gift cards; and prepaid arrangements with utilities and service providers, where customers pay in advance for energy, water, or internet access. In business-to-business transactions, deposits or down payments may be required to secure future delivery of goods or services.

In accounting, prepayments are recorded as assets when payment precedes the recognition of related expenses. They are gradually expensed over the period in which the benefit is received, and may be reclassified to expense or liability if the agreement changes or services are not rendered.

Prepayment affects cash flow, budgeting, and credit risk. For suppliers and service providers, upfront payments can improve liquidity and reduce credit risk but require tracking of unused balances and potential refunds. For consumers, prepaid arrangements can limit overspending and protect against price increases, but may expose funds to fees, expiration, or restrictions.

Examples abound across industries: prepaid phone plans, prepaid debit or travel cards, and deposits for future services; mortgage or loan prepayments that reduce interest but may incur penalties depending on terms. Prepayment is a general concept that intersects with accounting, contract law, and consumer protection.