Salam
In one sentenceThe sale of specified goods to be delivered at a set later date, with the full price paid in advance at the time of the contract.
Simply put
Salam is the reverse of an installment sale: here the price is paid upfront and the goods are deferred. It helps a farmer or factory that needs cash today to produce goods it will deliver later, and the goods must be precisely specified by description, quantity and delivery date.
For the seller: the amount received is not yet revenue but a liability until it delivers the goods. For the buyer: the amount paid is an asset (an advance payment) until it receives them.
Worked example
A date farm sold 10 tons of dates on Salam, to be delivered after six months at 5,000 SAR per ton, and received the full price at the time of the contract.
Price: 10 × 5,00050,000 SAR
Dr. Cash50,000
Cr. Deferred revenue: Salam contracts50,000
Becomes revenue when the dates are delivered50,000 SAR
Don't confuse it with
IstisnaIn Istisna the goods are manufactured at the buyer's request and the price may be paid in installments; in Salam the full price is paid at the time of the contract.