What is the Difference Between Prepaid and Postpaid?

Prepaid and postpaid are two forms of payment that may be involved in many types of services. It’s most common for people to connect these terms to cellphone plans, but this is only one of the many variations of these two types of payment methods. When people prepay, they pay in advance of using a service; when they postpay, they pay after having used a service. In the cellphone example, many people pay in advance for a specific amount of minutes, while in others, people pay after use, though many plans simply charge a monthly fee for unlimited minutes. In the most classic postpaid cellphone plan, a bill would arrive at the end of the month, listing the total usage fees for the month.

Another illustration of prepaid and postpaid services involves postage. Most people who mail a letter prepay for its delivery. They affix a stamp to the letter or they pay to send a package at the post office or other shipping facilities. Though rarer, sometimes the person receiving the letter would pay its postage instead, after it has already been sent.

A similar thing occurs when people pay for an item on delivery. The cash on delivery (COD) method is a way of postpaying for something. Since people don’t always pay when they receive something or pay to redeem an item that has shipped, prepaying is usually preferred because the shipping company, whether the postal or other service, then loses the costs of having shipped the item, since it has shipped without payment.

Many types of utilities allow people to pay either before or after they are used. Payments for certain things like water, gas and electric are usually paid after the month in which they are consumed. The exact amount paid tends to depend on the exact amount used.

Other utility services may more commonly require prepaying because costs aren’t tabulated by use. Cable, Internet and some phone services may be prepaid with a specified dollar amount per month. Phone services are sometimes tabulated after the fact because some people pay additional amounts for long distance calls. Many companies have switched to plans where domestic calls are unlimited, but they might still assess extra charges for international calls. Still, a flat rate prepaid fee often makes bookkeeping easier.

A number of other prepaid and postpaid examples exist. Rent for homes is prepaid, and most landlords expect payment at the beginning of each month for the next month in which the renter will occupy the home. Conversely, stays at most hotels or motels are postpaid. People pay for the stay when checking out and this gives the hotel or motel a chance to assess any fees that are extra, like for phone calls or movie rentals. In regard to movie rentals, some services charge people a prepaid flat fee each month, offering customers a certain number of DVD rentals or movie downloads for this fee.