Invoice Prepayment

[Gundenia Ransbottom]

Aprepayment invoice is a document used to record advance payments from suppliers or clients. It contains the amount to be prepaid on a sales order and enables you to invoice deposits required from clients or sellers.

These two concepts are not the same. A prepayment is some amount that a buyer pays in advance, while the main goal of deposits is securing a transaction. Therefore, a payment made in advance can be considered a prepayment. When a deposit is paid, a payer loses the power of disposition over the money as the funds get frozen on the receiver's account. At the same time, the payer remains an owner of the money paid.

The best solution is issuing an estimate, then a prepayment invoice, and a final invoice. When using an invoicing system that brings this process together, you can generate these documents with a few clicks while the final amount to be paid and an associated prepayment invoice is recorded on your final invoice.

This article describes and contrasts the two methods that organizations can use for advance payments (prepayments). One method creates a prepayment invoice that's associated with a purchase order. The other method creates prepayment journal vouchers by creating journal entries and marking them as prepayment journal vouchers.

Organizations might issue prepayments (advance payments) to vendors for goods or services before those goods or services are fulfilled. Two methods can be used to issue prepayments to vendors. To minimize risk, you can track prepayments by defining the prepayment on a purchase order. For this method, you must create a prepayment invoice that is associated with a purchase order. This method is referred to as prepayment invoicing. Organizations that don't want to track prepayments as closely or don't receive a prepayment invoice from their vendor can use prepayment journal vouchers instead of the prepayment invoicing method. You can create prepayment journal vouchers by creating journal entries and marking them as prepayment journal vouchers. For this method, you can't track which prepayments to a vendor are made against which purchase orders. However, you can mark a posted prepayment for settlement against a purchase order.

Accounting practices in many countries/regions require that prepayments from a customer or to a vendor not be posted to the usual summary accounts for the customer or vendor. Instead, these prepayments are posted to special ledger accounts for prepayments. When a sales order or purchase order is created, an invoice is issued to the customer or from the vendor. When the invoice is paid, the prepayment and sales tax prepayment voucher on the prepayment ledger accounts are reversed, and the invoice amounts are automatically posted to the usual summary accounts.To create a prepayment, follow these steps:

Prepayment invoices are a common business practice. A vendor issues prepayment invoices to require a deposit on the purchase before the purchase order is fulfilled. For example, some vendors require a prepayment for custom goods or services. If a vendor issues an invoice that requests prepayment, you can use the prepayment invoicing feature. A prepayment value can be defined on the purchase order, a prepayment invoice is recorded and paid, and then the prepayment invoice is applied to the final invoice. Follow these steps to create a prepayment.

A prepayment account must be defined on the Purchase order tab of the Inventory posting page (Inventory management > Setup > Posting > Posting). The prepayment account is updated, usually debited, when the prepayment invoice is posted. The balance in the prepayment account is reversed when the standard invoice that's applied to the prepayment invoice is posted. If you don't settle the prepayment invoice to a payment prior to applying the prepayment invoice to the standard invoice, the accounting entries from the posted prepayment invoice are reversed when the standard invoice is posted.

The offsetting summary accounts payable account is defined on the Vendor posting profile. To define the default posting profile, go to Accounts payable >Setup > Accounts payable parameters >Ledger and sales tax tab > Posting profile with prepayment vendor invoice.

The Prepayment application policy indicates whether settled prepayment invoices will be automatically applied to the final invoice that was created manually. Invoices that are created using a data entity won't refer to the Prepayment application policy. You will need to manually apply settled prepayment invoices to invoices that were created using a data entity. To define the policy, go to Accounts payable >Setup > Accounts payable parameters > Ledger and sales tax tab > Prepayment application policy. If the Prepayment application policy field is set to Automatic, the prepayment invoice will be automatically marked for settlement with the final invoice. If the field is set to Notification, a visual indication that a prepayment invoice is available for application will display when the final invoice is created.

Multiple prepayments definitions on a purchase order aren't allowed. If you need to allow multiple prepayments on a purchase order, post the payments using the payment journal instead of a prepayment invoice.

When the prepayment invoice is posted, the vendor balance and prepayment account are updated. The Prepayment application value on the prepayment definition contained on the purchase order is updated. The default financial dimension entries for the posted prepayment voucher will be taken from the header information on the purchase order.

If the Lock financial dimensions on invoice lines on vendor prepayment invoice feature on the Feature management page is turned on, the dimensions in the prepayment header or lines can't be updated.

Before posting the standard invoice for the prepayment invoice, you can reverse the settlement of the payment from the prepayment invoice. However, after a standard invoice is applied to the prepayment invoice, the payment settlement can't be reversed from the prepayment invoice.

Record the standard invoice received from the vendor. As part of this process, you can apply the settled prepayment invoice to the vendor invoice so that the value of the invoice is reduced by the amount that's already been paid. Applying the prepayment invoice to the vendor invoice will ensure that accounting entries from the prepayment invoice will be reversed.

If you forget to apply the prepayment to the standard vendor invoice at the time of posting the vendor invoice, the settled prepayment will be available to apply to other invoices from this vendor from the Vendors page (Accounts payable > Common > Vendors > All vendors > Invoice tab > Apply).

If you need to unsettle or reverse the application of a prepayment invoice from a standard invoice, select the Reverse action from the Vendors page (Accounts payable > Common > Vendors > All vendors > Invoice tab > Reverse). After the prepayment application is reversed, you can apply the prepayment to another standard invoice.

Prepayments are payments that are invoiced and posted to a sales or purchase order before you post the final invoice. For example, you might require a deposit before you manufacture items to order, or you might require payment before you ship items to a customer. You can use the prepayments capabilities to invoice and collect deposits from customers, and to remit deposits to vendors. This way, all relevant payments are posted against the same invoice.

For each customer or vendor, you can define prepayment requirements for all items or selected items. When you've set up prepayments, you can then generate prepayment invoices from sales and purchase orders with prepayment amounts that are based on your setup. You can change the amounts on the invoice as needed.

For example, you can specify a total amount for the entire order, or you can distribute the prepayment across each line on the order. You can also send additional prepayment invoices if, for example, additional items are added to the order. You can increase quantities or add new lines to an order after issuing a prepayment, and then you can post another prepayment invoice.

Some of the raw materials we purchase are advanced payment methods.

But, I had to figure it out myself because there was no procedure or training on the advance payment processing process.

The entire process of processing the advance payment as I understood it is as follows. Could you please let me know if what I have figured out is correct or if there is a process that needs to be added?

I am a bit late to the party but have been trying to put the same process down on paper and trying it out. I have done exactly what you have done in the steps that you have taken but I find that when I get to creating the final invoice for the receipted goods Epicor tells me that the Adv Pay is automatically populated with the sum of any advance payments but this is not the case in my example as the field although enabled is empty. I ran a BAQ and the PODetail.AdvPayBal (which is apparently where the figures comes from) does indeed show the advance payment balance but Epicor does not bring it onto the invoice detail screen and if I enter it manually it is not accounted for in the group edit list which makes me think I am missing a step somewhere.

Thanks Greg - that is the exact method I am following but the advance payment is not showing in the less adv pay field. I will try again and document each step before submitting a case to support as I am obviously doing something wrong.

My customer wants to require that their customer puts a down payment for items they are ordering. The system will allow them to enter the payment when it comes in (as a prepayment). They want to however to send an Invoice for the down payment.

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