What is the ruling on taking advance payments from customers on products not yet under the seller’s possession, bearing in mind that the product will be purchased using some of the customer’s money and some of the seller’s money?
If he makes a down-payment so he can reserve it for him, without actually finalising the transaction; since he is only placing a deposit for the seller to reserve it for him and not sell to anyone else, as they haven’t yet finalized the purchase, then there is no harm in this.
But if he pays him in advance with the intention of purchasing (the product), despite the product not being in the seller’s possession, then this type of transaction is invalid, unless it is in the form of As-salam; which is permissible by consensus of the scholars. But [note that] its method is to give the full amount at the time of contract on the basis that the seller provides him a specific product with a detailed description along with a deadline that is known (between both parties). Therefore, they should carry out the transaction in line with this method in order to remove themselves from falling into the prohibition.
Or else they would fall into the prohibition of the Prophet ﷺ; where he prohibited selling something that one does not own, as he will be selling something that he doesn’t own. (He will also fall into the prohibition of the Prophet ﷺ); where he ﷺ prohibited from profiting off that which one cannot guarantee, as he will be profiting from something that he cannot guarantee, and Allah’s aid is sought.
And if he gave it to him from the angle of cooperating with him (i.e as a loan) in order for him to purchase and supply the product, without there being a contract agreement, then there is no harm in this.
But if this (loan) obliges him to sell to him, then it is not valid; as it falls under the prohibition of ‘giving a loan for an additional benefit’; because he gave him the loan on the condition that he sells it to him – not to anyone else. Therefore, it is feared that this (transaction) falls under the prohibition.
Shaykh Muhammad ibn Hizaam – may Allaah preserve him
Abu Fajr Abdulfattah ibn Uthman As-Somali