What is one advantage and one disadvantage of receiving sales revenue in advance?

Question

So basically, a business receives revenue but has yet to actually earn it.

Answer 1

It's essentially a draw, or loan (probably).

The advantage is you get money right away to pay bills or operate on.

The disadvantage is when you make the sales you won't get as much, because some of it was already given to the company in advance.

Using a commissioned salespeson as a comparison, he/she might take the draw initially to pay for rent and gasoline, but the draw is designed to give that salesperson some income, temporarily, and has to be paid back when sales commissions are made.  Usually if the salesperson does not start making some decent commissions after a few months, the company releases the salesperson.

Answer 2

Advantage:

Improves your cash flows. You get the money in advance to operate your business. Hence, you require less of your own money as working capital.

Disadvantage:

If the time gap is huge between when you receive the money and the time you actually deliver your product or service, you could lose out on some earnings. For example 1 year ago you agreed to sell product X to the customer for $100. Cost to make the product at that time was $60. The customer instructs for delivery 1 year later. 1 year later the cost to make the product is $80. You earn less.

If the revenue you received is refundable, then it's not revenue at all. It's only a refundable deposit. And if you pay comission to your salesperson for this, then you may not be able to claim back this commission from your salesperson in the future if the customer decides to get a refund and not complete the transaction.