Money is one of the most important parts of life. Due to this it is important to understand different types of financial transactions. Token money, upfront payment or advance payment is one of them. If you are running a business, this becomes more important. The among varies depending on the deal size but you need to pay advance money. In this article we will discuss how advance payments work. We will also talk about some token money refund rules in the end.
Token Money Definition
First of all, let us start with the basics. Meaning of token money is hidden inside the name itself. If you go by the token money definition then we will say that this is a partial amount you pay in advance. You may be buying a product online or outsourcing services, the nature remains the same. Most of the time we create a contract, write payment terms and the work moves as discussed.
Therefore, the objective is to ensure two parties are bound to fulfill their responsibility. To make the contract even stronger one party makes upfront payment to close the deal. In this case you make a balance payment on a future date. You can also call it advance money. Normally the objective is to get into a contract. In this case you take some money in advance and finalize the deal on a later date.
Importance of Advance Payments
No doubt it is a very crucial part of any financial transaction. Financial transactions come with a risk. An advance payment reduces the risk of losing 100% money.
Importance of advance payment in Business
Business is full of uncertainties. Due to this you need to be very careful when making a contract. Risk of losing money is higher in business than in regular transactions. Due to this the importance of advance payment is more when you are doing business. No doubt that the common objective is to make profit in business. But fraudsters are always looking for a chance to do a scam. Token money is just one of the methods of reducing loss in business.
Advance payments save you from commitment failures
We live in an era where greed is rising. Failed commitment is very common as a business person you should accept it. Due to this it is important to take money before you initiate a deal. This is also related to commitment. In any case where advance money comes into picture, both parties are assured about the transaction. Receiver end takes responsibility for timely delivery and the one who is paid keeps the document.
For example you want to make a website and hire a website development company. After a certain time, you feel that the work is not going as planned. Maybe the client is asking for extra work and refuses to pay. At least you will have a small amount of money to cover up the loss. The same thing can happen at the other side also. The IT world is full of fraudsters. There are fake companies and fake developers, who take upfront payment and then refuse to work. Or may ask for extra money for a small amount of work.
A contract now comes into picture. This document helps in case of any dispute. Importance of advance money is more in case of property deals and large business transactions.
How to make contract and take upfront payment?
A contract is one of the most important business documents in today’s world. A contract is the first milestone of making business profitable. Many businesses fail due to lack of contract agreements. A contract ensures that all parties are working as per discussed in the meeting. Both parties get a copy of the contract, therefore, nobody can deny the terms. Additionally, you can also take some upfront payment or token money and write milestones about the remaining payment.
To make a contract you should include following.
Reason for taking this advance payment
Terms and conditions
Refund terms and
Rules applicable in cancellation of contract
Understand Upfront Payments with Frequently Asked Questions
Many people refer to this as an upfront payment or advance payment system. Here is the list of some common questions about upfront payments that people ask.
What is the definition of token money in economics?
As per Wikipedia, token money is a form of money that has little intrinsic value compared to its face value. Token money is anything that is accepted as money, not due to its intrinsic value but instead because of custom or legal enactment. Token money costs less to produce than its face value.
What is token money in property?
In simple words, token money in property is the advance payment the buyer pays the seller to lock the deal. This happens after the verbal agreement. Token money in property is also among the first steps of finalizing a deal. It is over and above the written communication in many cases. Especially in countries like India, people prefer taking cash payments as a token amount. Token money in real estate is as important as the deal itself. Normally, real estate transactions are high value transactions where the buyer pays upfront payment to lock the deal. Once this happens there are some terms and conditions.
Token money agreement for property
If you are buying property or selling it then you pay some advance token money to lock the deal. In addition, you also need to make a token money agreement for property. The document contains following information:
- First of all, mention the amount paid in advance for property along with mode of payment.
- Mention property related details like total area, carpet area and location.
- Next payment date as per buyer commitment.
- Terms and conditions apply along with token money refund rules.
- At the end, all parties should sign the document.
- In addition, you should also have at least two witness for safety in case something goes wrong.
What are common token money rules in property?
In a normal scenario, if an amount is locked for the deal, there is always a date of registration. Both parties (buyer and seller) sign a property agreement for sale. The contract has terms and conditions applicable in a property sale. Some of the main points are these.
1 – Total amount of sale along with Token money amount and remaining balance is the main parts of a property agreement.
2 – There is an expected date of registration. Both parties must complete the registration on or before the due date.
3 – No price changes are possible irrespective of what happens in the market.
4 – If the property registration does not happen as mentioned any issue at buyer end, the contract stands cancelled.
5 – In this case the money remains with the seller.
Token Money refund rules in property deals
Cancellation of a real estate contract is one of the unfortunate incidents. In this case token money refund rules apply.
1 – In normal scenarios a buyer requests a refund in case of cancelling a property deal.
2 – If the seller cancels the deal then he or she is liable to pay double the amount of token money. This is a common token money refund in property deals.
3 – Parties can mention the refund amount when creating a property deal agreement.
What is a token money receipt or advance payment receipt?
Advance payment receipt is like an invoice. The format of token money receipt depends on the product or service. But this works as a confirmation that the advance payment against products or services is clear. You can also use this as proof of payment.
How to make a token money agreement?
You can use a readymade token money agreement format to do it early. After making some changes to the terms of the advance payment template you can use it. However, you can create an original contract also by writing your own rules.
When you take advance money for a product or service, you automatically get into a contract. But we still recommend that you create a template for accepting advance payments. The documents should have all the details about the deal amount, token received and remaining amount. The idea is to make sure everything is clear first hand.
We have long list of business articles and documents for you. You can read in the business articles category and also download the token money format.