Re: Prepayment

[Chris Travers <..hidden..>]

On Wed, Jan 28, 2009 at 12:54 PM, Del Miller <..hidden..> wrote:

> Hi Chris & thanks for the reply.
>
> Well, my customer said, "Get me an invoice so I can prepay you." -- or
> something to that effect.  I assumed that he needed an invoice on his
> end for his accountant to work with.  I don't know what else they
> *could* use just that they requested an invoice and I gave them one.
> Then I started to wonder about whether this was the correct thing to do
> and began trying to figure out what would happen when the check came in.
>
> I hadn't really thought it would present a problem as I've seen the
> 'Credit Limit: xxx Remaining: -yyy' line on the sales invoices and
> figured that the -yyy could go positive somehow and then be billed
> against but the exact mechanism for such magic was unknown to me.
>
> I can see from the above that I probably should not have issued the
> invoice.  As to the other options, the Sales Order with a note seems
> awkward and the receipt idea doesn't satisfy the 'get me an invoice'
> requirement.
>
> If you're client made such a request how would *you* handle it?  What
> would be most 'correct'?

Honestly, I would do either a quotation or an order (quotation if they
hadn't decided to use my services yet, an order if they had).  I would
then hand it to them with a $2000 receipt.  Here is my logic.....

The basic premise of accrual accounting is that income is posted to
the books when it is accrued, and this is when it is invoiced.  An
invoice is supposed to be issued when everything is done necessary to
get paid for the work.

Here is how I look at it this way (IANAL, TINLA):  These are all legal
documents so I think it is important (for me) to use them as they are
precisely intended to be used.

A quotation is a preliminary offer to provide goods and services for a
certain price (an estimate is a different thing-- don't use quotations
for estimates).

A purchase order is an agreement to purchase products under certain
payment terms.

A sales order is an agreement to provide goods and services under
certain terms.  Orders can be seen as contracts.

Invoices request payment for goods and services provided as per orders
(formal or informal-- an informal order could be me walking into your
store and asking for a product and need not be entered into the
software).

Now, there are two things we don't do at the moment that would make
this a lot nicer (after 1.3 is out, this will begin):
1)  Pro forma invoices.
2)  Order to payment tracking.  This would allow your customer to
apply a payment against a specific, uninvoiced order.  Right now, the
payment is just tracked to the customer, and one can then apply that
overpayment against a later invoice.

However, if someone REALLY pushed the matter, this is another option:
1)  Create an account, "Unearned Income Receivable" as a liability
account. Check the AR Summary box.  Be clear in the notes that this is
a pro forma invoice.
2)  Create an AR transaction against this account.  Generate a
transaction from it, and print it (basically a service invoice).
2)  When the invoice is issued, reverse this transaction, and re-apply
the payment against the normal AR account (via the normal interfaces).
 It is nice in that it gives them something for their records which
says "Transaction" or "Invoice" and avoids messing with your books or
issuing legal documents which represent things which are not clear.

Best Wishes,
Chris Travers