Advance funding is any payment on a future obligation. Advance funding is usually deducted against some future obligation that the payer otherwise owes the payee. Most common examples of advance funding are: payday loans, viatical settlements, lawsuit settlement advances. Advance funding can be described in a contract, which specifies future payments in order to repay advance funding. It is usually discounted using some predetermined or based on the market interest rate. In pensions plans the term advance funding is used to describe designating money to fund future benefits.
Types of Advance funding
- Pyaday loans - a relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next paycheck
- Lawsuit loans - a loan that the victim receives for compensation, which will be paid after the legal process is completed. Proceedings regarding litigation cases allow you to receive funds to cover personal injuries. The cash plots allow you to receive part of the future winnings for compensation, before the court's judgment. This is to help victims who are struggling in court for compensation for the opportunity to finance their current financial needs(Friedman, L. M. 2017, p. 16-20).
- Artists - people connected with the creation and publication of literary and artistic. Initially they receive a payment in advance, which is perceived as an advance payment for future license payments related to the sale of a work (Apke, T.M., 1998, p. 7-9)
- Payroll Services - - they are used by companies that have problems with financial liquidity and must maintain the liquidity and consistency of the payroll process. Payroll services will provide capital by offering loans based on the company's assets. Applicants must meet certain criteria and obtain agreement on the advance payment
- Advance payment - it is also used in the process of collecting funds to fund an account for future benefits, for example in the case of a retirement plan (Burton, T.B., 2005, 69).
Advance funding in Government
Advance funding also means the government's cash reserves to be used if necessary to cover commitments made after the end of the financial year for payments exceeding the agreed budget. advance funding is a way of avoiding financial problems in the event that the budget allocated for a given year is not excessive.
These are financial resources that are issued in a given financial year and in fact should be issued in the next financial year. In fact, this leads to a reduction in the budget for the next year and increased funds for the current year.
Budget amounts that have not been distributed in one calendar year can be carried over to subsequent calendar years as advance financing of the budget, in accordance with the financial regulations (Budget of U.S Government, 2014, 128, 136).
- Apke, T.M., (1998). Acquisition and Licensing of Intellectual Property. California State University.
- Budget of the U.S. Government (2014). Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2014. Budget.gov, p. 128, 136, 457.
- Brunnermeier, M. K., & Pedersen, L. H. (2008). Market liquidity and funding liquidity. The review of financial studies, 22(6), p. 2201-2238.
- Burton, T.B., McFadden, J., (2005). Employee Benefits. Chicago, p. 69-71.
- Friedman, L. M. (2017). Law, lawyers, and popular culture. In Poular Culture and Law. Routledge, nr. 98, p. 15-20.
Author: Beata Kocyłowska