Prepayment Invoice: Get Answers to What + How + When of Prepayment Invoice

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📝Key Takeaways:

  • Meaning and benefits of the prepayment invoice
  • Step-by-step instructions to create a prepayment invoice
  • Ways to use prepayment invoices

Prepayment refers to the transaction wherein a customer pays for your goods or services in advance, either partially or fully. Prepayments help you steer away from major losses.

Therefore, incorporating an advanced payment system into your business is the need of the hour. You cannot establish a functional prepayment framework without the assistance of prepayment invoices.

A prepayment invoice helps you record the advance deposit made by the customer toward your business. A correct estimation of the month’s profits of a business is also calculated based on these prepayment invoices.

Thus, it is pertinent for a business owner to build a functional accrual accounting system. Through this article, you can develop an understanding of prepayment invoicing.

You will also learn about prepayment invoices’ various benefits, how to create a prepayment invoice and when to use it, and more. Continue reading to know better…

What is Prepayment Invoice?

A prepayment invoice works both ways; you can issue it to your customer and vendor. It can be to denote that you have sent a prepayment amount to your vendor or to seek prepayment amounts from your customer.

You can decide the prepayment amount by either fixing a prepayment percentage of the total amount or setting a fixed amount.

If there is a discrepancy in the number of requested items or services, you can issue additional prepayment invoices.

By establishing default prepayment percentages, you can simplify the payment process manifold. A prepayment invoice is issued much before the final invoice.

It helps in realizing your payments before the settlement date, usually partially. Thus, if established precisely, this system can have a major positive impact on your organization.

Moreover, establishing the prepayment process can be simple if you use invoicing software like InvoiceOwl.

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How Does Prepayment Invoice Benefit You?

Prepayment invoices can benefit your business in various ways. It is greatly assistive in setting up an accrual accounting framework, maintaining your company account, keeping a tab on the profit margins, etc.

Here is a list of the benefits a prepayment invoice offers:

1. Increased customer satisfaction: By establishing an effective prepayment framework, you give your clients all the more reasons to purchase from you.

Customers do not have to stress about paying for the entire order simultaneously. By providing clients with the option of multiple prepayments on a purchase order, you create an installment-like framework for them.

2. Smoothened work process: Small businesses might not have enough funds to proceed with massive orders. You can realize the costs of manufacturing and dispatching goods or services via prepayments.

While prepayments help small businesses arrange raw materials and initiate sales orders, you can attach prepayment invoices to expense reports to help track the expenses incurred by your business.

3. Improved inventory precision: A prepaid invoice not only helps you track your expenses and purchases but also assists you in keeping a tab on your inventory.

Therefore, a prepayment invoice is a pretty useful tool in general. 

When Shall You Use Prepayment Invoice?

You can use repayment invoices can be used on several occasions, including defining a prepayment amount on your purchase order before issuing the final invoice, paying a vendor or an employee in advance, recording the prepayment amount, and more.

If yours is a cash accounting framework, you record prepayments only once the cash is received. However, in an accrual accounting structure, prepayments are recorded as soon as the financial event occurs.

How to Create Prepayment Invoice in Automated Software?

If you want to create any receipt or an invoice, opting for invoicing and estimating software can help you greatly. 

InvoiceOwl helps you create an accurate receipt and invoice, and it also helps you generate a professional prepayment credit memo, purchase order, sales order, and more.

Other resources provided by InvoiceOwl include blog posts, alternatives, comparisons, an invoice generator, an estimate generator, a purchase order generator, a receipt maker, various templates, and guides.

Now that we know the importance of automated software like InvoiceOwl in the invoicing procedure, here is how you can create prepayment invoices using automated software:

1. Create a new account or log in to your existing account:

Enter the required details, such as business name, address, contact details, country of origin, business type, etc., to create an account with InvoiceOwl.

Fill out further information, such as whether sales tax applies to your goods or services or not and if it is inclusive or exclusive.

If you already have an InvoiceOwl account, log in by entering your credentials.

2. Go to the ‘Invoices’ section from the drop-down menu:

In the next step, you are required to select the ‘Invoices’ option from the drop-down menu, visible on the left corner of the page.

The next page has two segments (active and paid) to track your invoices and an option to create a ‘New Invoice.’

3. Create an invoice in minutes

This segment allows you to enter all the pertinent details required to create a professional prepayment invoice. You can mention the following details to generate an accurate invoice:

  • Invoice number
  • Date of issuing the invoice
  • The settlement date
  • Payment terms
  • Line items to mention every item/service sold
  • Quantity, rate, tax, and amount
  • Note for the customer
  • Payment instructions, if any 
  • Attachments for adding supporting documents
  • Contract
  • Payment options

4. Save and send

Once you select the ‘Save’ button, you will be directed to the next page. This page has the options of ‘Edit’ and ‘Email’ on the left corner. You can directly send the created prepayment invoice to your client using the ‘Email’ option.

Even though the steps mentioned above are for creating a new prepayment invoice, you can customize an invoice template per your preferences and requirements.

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Frequently Asked Questions
  1. What is a prepayment invoice?

    A prepayment invoice is a document a business issues to its clients before fulfilling the order. It requires customers to pay a fixed amount to the business in advance.


  2. Is prepayment useful?

    Yes, prepayments are useful as they prevent businesses from incurring losses and lift the burden off the client’s shoulders by allowing them to pay in parts.

Conclusion

If implemented correctly, the prepayment framework facilitates a win-win situation for all the parties involved. A prepayment invoice plays a major role in successfully establishing a prepayment structure.

Therefore, generating professional and accurate invoices is the need of the hour. Using an automated tool to generate accurate invoices, bills, receipts, sales orders, and purchase orders provides your business with great assistance!

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the Founder of InvoiceOwl and is the main curator & writer of the content found on this site. With ideals of quality, commitment, and perseverance, he believes in creating lasting business relationships with the clients.

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