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Prepayment terms


Prepayment refers to when a business pays for certain expenses in advance, but the benefit is received in a later period. By adjusting the accounts, it ensures that the figures are correct for the financial period. Organizations might issue prepayments (advance payments) to vendors for goods or services before those goods or services are fulfilled. 


A business might purchase a whole year of insurance but only needs to account for a few months.

In Dynamics 365

In Dynamics 365 Finance and Supply Chain Management, two methods can be used to issue prepayments to vendors.

Defining the prepayment on a purchase order.

This is referred to as prepayment invoicing. This method should be used if a prepayment value must be defined on the purchase order or if a prepayment invoice and a final invoice must be posted. With prepayment invoicing, the vendor balance doesn’t reflect the prepayment value throughout the process.

To create a prepayment from a purchase order, the first step is to ensure posting profiles have been set up for prepayments.

The prepayment value is defined on the purchase order as shown below;

You can create prepayments as a percent of the net amount or fixed amount.

The vendor submits a prepayment invoice. The Accounts payable coordinator records the prepayment invoice against the purchase order, and then the prepayment invoice is paid.

After the vendor delivers the goods or services, and the related standard vendor invoices have been received, the Accounts payable coordinator applies the prepayment amount that was already paid against the standard invoice and settles the remaining amount of the standard invoice.

Businesses that don’t want to track prepayments as closely or don’t receive a prepayment invoice from their vendor can use prepayment journal vouchers instead of the prepayment invoicing method. You can create prepayment journal vouchers by creating journal entries and marking them as prepayment journal vouchers. 

From purchase ledger, create a supplier payment journal.

Create a payment journal and click lines to select your vendor. Click settle transactions to select transactions for prepayment.

The settle transactions form displays the transactions available for settlement for that vendor.