Creating & posting down payment invoices
For sustained cash flow, down payment invoices are often used for large orders. Create them with projectfacts
Billing orders via the down payment invoice
The order is here – how should I bill it?
After successful acquisition, the desired large customer order finally arrives. It will tie up a large part of your resources over the coming months. On the one hand, the strong workload is of course pleasing; on the other hand, from a business perspective it raises a number of questions. “How do I ensure the vital cash flow?” “It’s nice that money comes in at the end, but I have to pay the salaries now!” At this point, fortunately, the down payment comes into play and provides answers.
What is a down payment?
A down payment is a partial payment of a client’s total debt. It relates to the partial performance you have provided as the contractor. From a legal point of view, this arrangement is rather the exception, since the legislator assumes that payment is usually made only after a complete service has been rendered.
What is pleasing for you as the contractor is that you receive money more quickly. The advantage for the client is not having to settle a large sum at the end.
The explicit term for an invoice using this procedure is down payment invoice, and it must also be designated as such when carried out. Every invoice based on the down payment procedure is accompanied by a closing or final invoice, with which the process is completed.
How high should the down payments be?
There are no statutory regulations for structuring down payments. It is therefore subject to freedom of contract and solely to the agreement between you and the customer.
Where’s the catch?
There is a small but significant difference between a down payment invoice and a partial invoice that must be taken into account:
A partial invoice demands settlement of the debt for one or more partial services already rendered. (hence also: partial final invoice)
With the down payment invoice, a percentage or relative share is requested before final completion.
These are therefore two different arrangements, which have different effects in particular with regard to VAT and warranty.
An example
For a major adjustment, a software manufacturer and the customer agree on a down payment in 2 instalments and a final payment.
The total amount is 200,000 euros. Since some investments are initially necessary to carry it out, they agree on one large and one small instalment, with the large instalment at the beginning.
The first instalment amounts to €100,000, the second €50,000 and the final invoice likewise €50,000.
1. Down payment invoice
VAT 19% €19,000 Invoice amount gross €119,000
2. Down payment invoice
VAT 19% €9,500 Invoice amount gross €59,500
Final invoice
Service net €200,000 Invoice amount gross €238,000– 1st instalment €119,000– 2nd instalment €59,500 Final total gross €59,500
Sounds good, but how do I map this in projectfacts?
In projectfacts, the specifics of down payments can be set up under the document data. In the “Contract and billing data” tab you will find the fields for defining the billing mode. In the present case, “payment plan” is selected, and the instalments are defined accordingly. It is important at this point to set a final invoice, which then automatically forms the sum of the down payments made so far and the amount still outstanding and transfers it into the closing invoice.