Follow this process when a payment is sent to a vendor ahead of merchandise receipt
In a purchasing environment, it is common to remit payment before any merchandise is ordered or received. This process will record and keep track of these advance payments to prevent accidental overpayment when the merchandise arrives.
Vendor prepayment process
Please note that the workflow is only appropriate when the full prepayment invoice is paid. Incremental payments of a pre-payment invoice are not supported.
- Go to Accounting > Accounts Payable > A/P Invoice Entry.
- Enter the vendor and press Tab to populate the screen. Do not enter an invoice number.
- Click the On Account button (as shown below) before proceeding any further.
The system will generate a special On Account Invoice for payment by check.
- Use the PO or Reference # field to indicate that the invoice is a pre-payment.
- Enter the prepayment amount as a positive number.
- If this deposit applies to a merchandise order, the entry of the OA invoice will post a debit to Non-Inventory and the payment thereof will clear it out with a credit.
- For non-merchandise entries, note that the transaction will pass through the selected G/L account as a debit when the OA invoice is created and a credit when it is paid.
- Complete terms and due date fields before saving.
- The document will look like the image on the following page.
- The system will pass the transaction through the selected G/L account. Merchandise invoices will use the Non-Inventory Clearing account (debit at time of OA entry, credit at time of check print).
- The Vendor Ledger will show an open document at this point.
- The OA invoice will not generate a credit on the Vendor Ledger until it is paid by check.
- Note the positive balance displayed at this stage.
- Go to Accounting > Check Print.
- Click the Edit Button and select Individual Check. The check may take the form of a system check or a hand check.
- The check payment must cover the entire prepayment invoice entered in the prior step.
- Select the vendor. The system will narrow down the selection. Click the invoice(s) to be paid.
- Click Print.
- As with any check or voucher print, be sure the output printed correctly before acknowledging the system message, otherwise you will have to void the item and start over.
- The Accounts Payable Checks screen will immediately change the balance to a credit to show that the item was paid.
- Inquiring on the vendor’s ledger will show a credit amount after the “OA” invoice is paid. Use this credit against the payment of the actual invoice.
- The Open tab displays this credit balance.
- The Paid tab shows the prepayment invoice with a zero remaining balance.
- Enter the vendor’s invoice as per normal procedure. Merchandise invoices must contain a valid link to the PO.
- If the prepayment amount exactly matches the vendor invoice, and there is no further payment due to the vendor, generate a zero dollar Hand Check to remove both items from open status.
- If the prepayment amount is less than the vendor invoice, there will be a balance due to the vendor.
- If the prepayment amount is more than the vendor invoice, there will be a credit balance available.
Special considerations when prepaying for merchandise inventory
- The advance payment transaction in step 1 will pass through the Non-Inventory account, as specified in the G/L Control Table, because at the time of pre-payment, there is no received PO to link to the invoice. If processed correctly, the account will clear itself out.
- When entering the actual merchandise invoice in step 4, be certain to verify and link the received Purchase Order to it to avoid carrying an un-invoiced PO. Verify that the amount in the Linked Receipts field matches the amount being applied to the Inventory G/L account.
- Enter the “on account” prepayment invoice and generate payment in the same month to avoid residual balances in the Non-Inventory account at month end. Note that entering the on account invoice without generating a check will cause a debit to post to Non-inventory from the Purchase Journal.