Vendor Prepayment invoice, Prepayments and Settlement in Microsoft Dynamics 365 F&O

Hello People!

This article will cover the setups and the process of prepayment invoices, prepayments, and settlement of prepayments in Dynamics 365 F&O.

Prepayments are amounts paid for by a business in advance of the goods or services being received later. Any payment made in advance can be considered a prepayment.

A prepayment invoice is?a document used to record advance payments from suppliers or clients. It contains the amount to be prepaid on a purchase/sales order and enables you to invoice deposits required from clients. Prepayment invoices?are a standard 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 in Dynamics 365 F&O.

Prepayment Invoices and Settlement through Purchase Order

Step 1: Setup accounts and posting profile

A prepayment account must be defined on the?Purchase order?tab of the?Inventory posting?page. The prepayment account will be updated and debited when the prepayment invoice is posted.

Note: A procurement category needs to be created to add a prepayment in the Purchase order. To create a Procurement category, navigate to Procurement and sourcing > Procurement categories.

Navigation: Inventory management > Setup > Posting > Posting > Purchase Order

The offsetting summary accounts payable account is defined on the?Vendor posting?profile.

To define the default posting a profile, click?Accounts payable > Setup > Accounts payable parameters > Ledger and sales tax tab > Prepayment invoice > Posting profile with prepayment vendor invoice.

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.

Step 2: Process a Purchase order and add a prepayment

Create a Purchase order and add the necessary details. To add a prepayment, click on the Prepayment button under the Purchase Tab.

You can either give a fixed amount or a percentage of the total net amount.

Step 3: Create a prepayment invoice and settle

Once you save the prepayment, the prepayment invoice button will pop up under the Invoice tab in the Purchase Order.

Click on the prepayment invoice to generate an invoice.

Post the invoice. To check the voucher, click on Invoice under the Invoice Tab.

You can settle the prepayment invoice like a normal invoice through a vendor payment journal. To select the prepayment invoice, click on the settle transactions tab in the payment journal.

Now, the Vendor Balance has been settled and the prepayment account (i.e Advances to suppliers) balance still exists which will be cleared after the Purchase Order is received and invoiced.

Note: In the new version (10.0.28), you can also create a prepayment invoice through the invoice journal by enabling a parameter in Accounts Payable. In the previous versions, prepayment invoices can only be created through a Purchase Order.

Step 4: Apply the prepayment on Purchase Order Invoice

After generating the invoice, apply the prepayment to the invoice.

Click on the Apply prepayment button under the Vendor Invoice tab.

Select the Prepayment and click on Apply Prepayment. Now, post the invoice.

The balance in the prepayment account will be reversed when the standard invoice that's applied to the prepayment invoice is posted. If you do not settle the prepayment invoice to pay prior to using the prepayment invoice to the standard invoice, the accounting entries from the posted prepayment invoice will be reversed when the standard invoice is posted.

Prepayment and Settlement through Vendor Payment Journal

Step 1: Create a posting profile

Navigation: Accounts Payable > Setup > Vendor posting profiles

To define the default posting a profile, click?Accounts payable > Setup > Accounts payable parameters > Ledger and sales tax tab > Payment > Posting profile for payment journal with Prepayment.

Step 2: Create a prepayment through the vendor payment journal

My personal recommendation would be to create a separate journal for Prepayment, it would be easy to filter out different default reports.

After adding the necessary details in the vendor payment journal, mark the Prepayment journal voucher check under the Payment tab. Once the checkmark is set to Yes, it will change the posting profile defined in the Accounts payable parameters.

Now, post the journal.

3: Settle the Prepayment with an Invoice

There's an option to settle the prepayment in an Invoice journal, Purchase order and vendor transactions form.

• Invoice Journal

Create an invoice journal and mark the prepayment under the settle transactions tab. You can partially or fully settle the amount.

• Purchase Order Invoice

You can mark the prepayment before generating the Purchase Order invoice from the Open transactions button under the Invoice tab.

• Vendor Transactions form

You can settle an invoice and a prepayment/normal payment from the vendor transactions form.

Navigation: Vendor master > Vendor Tab > Transactions

Hope you like this article.

Feel free to share any feedback.

Muhammad Ahmad Khan

[email protected]

Dynamics 365 F&O Consultant