Why an advance invoice?
As a new entrepreneur, it can be a financial challenge to keep your business running, especially if you have to make large investments before you’ll receive any income. In such cases, requesting an advance payment from your customers is a smart move. Advance invoices are essential because:
- They protect your return on investment.
- They help you manage your cash flow.
- They show that you offer a professional service to your customers.
How do you create an advance invoice?
Creating an advance invoice is a simple process that can be completed in a few steps:
- Fill in the required information on the invoice. Make sure your company name, customer details, invoice number, date, and advance payment amount are correct.
- Indicate that it is an advance invoice. Put this on the invoice so that the customer immediately understands its nature.
- Specify VAT if applicable. Advance invoices are usually subject to VAT. Clearly state the amount and the VAT percentage.
- Refer to the subsequent final invoice. Add a comment stating that the amount of the final invoice will be reduced by the amount of the advance invoice.
Final invoice and advance invoice: cross-referencing
Suppose you invoice an advance payment of €1,000 for a total order of €5,000. On the final invoice, you indicate that the remaining amount is €4,000, with a reference to the advance invoice sent earlier. Currently, it is not possible to enter negative amounts for items in Dexxter. As one user pointed out,
you can get around this by simply processing the advance payment in a regular sales invoice, with clear communication about the advance payment. This point is on our roadmap to be added.
When drawing up the final invoice after the work has been completed, it is crucial to refer to the advance invoice. This enhances transparency and prevents confusion on the part of the customer.
VAT and taxes on your advance payment
VAT on your advance payment?
For entrepreneurs who make profits, the advance payment is taxed the moment the invoice is sent. In the case of benefit earners, taxation only happens once the advance payment is received. It is essential to understand these concepts well for correct accounting.
When is the advance payment taxed?
For entrepreneurs who make profits, the advance payment is taxed the moment the invoice is sent. In the case of benefit earners, taxation only happens when the advance payment is received. It is essential to understand these concepts well for correct accounting.
Conclusion
Advance invoices are a valuable tool for new entrepreneurs. Not only do they help improve your cash flow, they also demonstrate professionalism to your customers. By handling advance invoices correctly—such as processing VAT as required and drawing up final invoices—you can make your business more efficient and financially stable.
