What is a Partial Payment?

Definition: A partial payment is a payment that fulfills only a portion of the total amount owed. It is a disbursement that corresponds to just a fraction of a given financial commitment.

What Does Partial Payment Mean?

These kinds of payments happen in many different scenarios like real estate deals, where the buyer frequently issues an upfront payment to cover a portion of the whole value of the property and the rest is either paid in separate installments or it is fulfilled through a mortgage debt. On the other hand, in regular business environments, partial payments are also issued to place service orders, while the rest of the payment is delivered after the service is properly completed. This allows the buyer to remain in control of a certain fraction of the money to motivate the service supplier to complete the service as expected in order to receive the last portion.

Business takeovers and mergers are also scenarios where partial payments are issued according to a previously agreed schedule. The buying side of the transaction uses this as a security measure in case unforeseen circumstances, not fully disclosed in the agreement, affect the nature of the transaction. Having a remaining sum of money yet to be paid allows the buyer to withhold money as a compensation in case these circumstances are negatively affecting the company being purchased.

Example

Jimmy is a 25 years old recently-graduated linguist. He landed a job in a great manufacturing company recently and since he is still saving money for some things and paying for student loans he decided to buy a used car from a close friend. He and his friend agreed to settle the purchase at $5,000 but Jimmy is concerned about the car’s performance.

Since there are normally hidden damages or repairs that appear only while the car is being used Jimmy decided to negotiate an initial 70% partial payment for the car and the remaining 30% to be paid within 2 months. His friend agreed to this condition understanding that any non-disclosed severe damage will be discounted from this remaining amount.