Upfront deposit of 50%

Is there a way to ask for a deposit of 50% on a Tax Invoice? Customer wants one invoice per job. We ask for 50% deposit as a project can take 3 or 4 months to complete. Thanks for any tips.

You have a couple options:

  • One is to use a sales quote, retitled as a Pro Forma Invoice, listing the deposit to be advanced. Enter the deposit as described in this Guide: https://www.manager.io/guides/7093. The quote itself will have no financial impact.
  • Another, if your contract or understanding with the customer allows, is to send a sales invoice for the full amount with a note saying work will begin after a 50% deposit is received. Enter a normal receipt against the sales invoice, but for only the amount deposited. The sales invoice will show the receipt, reducing the balance due, and you can send the same-numbered sales invoice at the end of the job. This may have tax consequences from recognizing income earlier.

Thanks for your reply!

Keep in mind that, in many states, the second solution will bring a full VAT taxation on the whole amount, ie you’re paying twice the amount you should pay in that period.

Also, the two solutions have a different impact on the balance sheet. The first one will bring you a liability of 50%, the second one a credit of 50%. Since you didn’t complete the job, under a legal point of view, the only correct answer is the first one. You received some money for a service you’ll bring in the future.

Just as I said: “This may have tax consequences from recognizing income earlier.” Those consequences could be relative to VAT, sales tax, income tax, or any other type dependent on revenue.

That depends on the terms of any contract, also as I said. An agreement might allow for advance billing, with provisions for restitution upon failure to complete the job.

In this case you may have to adjust the BS and the P&L with a journal entry to have a correct accrual based accounting.