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Down payment sales invoice

Purchase & sales  — Fri 22 Apr 2022

If you and the customer agree to pay for something in two or more parts, it is important to invoice each part separately. The reason for this is that otherwise you will be remitting VAT too soon and/or too much, and revenue will be reflected in your figures.

Therefore, to arrange down payments, installment payments and part payments, you create a new sales invoice for each part. So each of those sales invoices has its own invoice number, invoice date, due date and delivery.

How do you arrange a down payment?

A down payment may not exceed 50% of the total amount, unless you have explicitly agreed in writing with your client that it will be more. Yet you often see that down payments of 20% to 30% are common. Suppose you sell a handmade rocking chair of € 800.00 including 21% VAT and you agree with your customer that a down payment of 20% is required, then you proceed as follows:

  • Create a new sales invoice. Let's say this one gets invoice number 0001.
  • Add an invoice item and write a clear description. For example, 'Gorgeous rocking chair'.
  • End this description with the sentence 'This invoice is a 20% down payment on order #123.'.
  • Calculate 20% of € 800.00 including VAT. That equals € 160.00.
  • Set the number of units of the invoice item to 1 and set the unit cost to € 160.00.
  • At the bottom of the invoice, check the box to indicate that the prices entered include VAT.
  • Create a second, new sales invoice. You leave this one at the status 'concept'. Therefore, there is no invoice number yet.
  • Add a new invoice item with a description here as well. You can pretty much repeat the previous description.
  • Just change the last sentence to: 'This invoice is an 80% down payment on order #123. A 20% down payment was previously made via invoice 0001.'
  • Set the number of units of the invoice item to 1 and set the unit cost to (800-160=) € 640.00.
  • At the bottom of the invoice, check the box again that the prices entered include VAT.
  • You leave this second sales invoice at the 'concept' status. You'll read more about that in a moment.

Obviously, you replace #123 in these texts with your real order number. Is your customer not a private individual but also a company? Then apply 20% to the amount excluding VAT. You must also indicate at the bottom of the invoice that the prices entered are exclusive of VAT.

Entrepreneurs always charge exclusive of VAT, but because private individuals experience everything including VAT, it is better here to choose a 20% down payment including VAT. The effect is the same. Without sales tax the rocking chair is of course € 661,16. And so a down payment of 20% is therefore € 132,23. Not entirely coincidentally 21% less than € 160,00. Still, entering the price including VAT is more pleasant for an individual, with the 21% VAT included € 160.00 appears to be more logical. We are not all math geniuses. A private individual often calculates the 20% down payment based on the price including VAT.

The second concept invoice

Because you entered the entire agreement at once, Daxto keeps reminding you of the second invoice with the down payment. This way it cannot be forgotten. Because the invoice is a concept it does not yet count for the tax declaration or for the profit tax. When it is time to ask for the down payment from your customer you only need to do the following:

  • Open the second invoice, it still has the status of 'concept'. Update the invoice date to today's date, the due date will automatically update itself.
  • Now set the status to 'final' or use the functions under the Send button from the 'concept' status. Those automatically mark the invoice as final.
  • The invoice will now have an invoice number, and will count for tax and revenue purposes from now on.

Why not just one invoice?

If you make one sales invoice for € 800.00 you can also have it paid in two payments. After all, you can link two received bank payments to this invoice. Yet this is not the intention. It has the following disadvantages:

  • The due date will most likely be 14 to 90 days after the invoice date. So if your customer doesn't make the installment until later, you're probably going to be reminded that this invoice was paid too late because not the entire amount was received within the payment period.
  • If you put the full € 800.00 in one invoice you already pay the full 21% VAT based on that invoice date. That is € 138.84 of € 800.00, instead of € 27.77 of € 160.00.
  • If the customer ends up not making the down payment, and the invoice becomes bad, then that VAT has to come back. Which is unnecessary effort. If you have worked yourself into that situation then there is a solution; supplementation. But this would not have been necessary if each part had been had been invoiced separately.
  • Also, your revenue figures are not correct. With one invoice, all of the revenue is booked on the delivery of that invoice, whereas under the invoice system you should count the down payment in the period in which it is received.
  • This skewed booking of revenue is compounded if the real down payment doesn't come in until a subsequent fiscal year. Then you pay profit tax in the wrong fiscal year.

So do yourself a favor, and make separate invoices for down payments, installment payments and partial payments. That way you won't have any unnecessary extra work later.