Record a customer advance or downpayment

Watch this video on how to record customer advance payments or read on below

Sometimes you may ask your customer to make a partial advance payment for a service you will complete in the future.

An example

Suppose you've agreed with your customer to receive 5,000 AED as an advance payment today for work totaling 10,000 AED, with the remainder of 5,000 to be paid once the service is delivered.

Here's how you will record these transactions:

  1. Issue the first invoice of 5,000 requesting the advance payment. Create an invoice with a line item against the "Unearned Revenue" account for 5,000. Choose a meaningful description such as "50% advance payment". If the transaction attracts tax, make sure to choose the correct tax rate (e.g. VAT on Sales) so WeKeep can record tax liabilities. You can then either send the invoice to your customer through WeKeep, or mark the invoice as Sent if you're sending the invoice PDF manually. At this stage, no revenue is recognized in your Profit and Loss.

  2. Record the advance payment. When the customer pays you the advance, record a payment against the invoice you've just created, paid through the account where you received the money (e.g. bank account)
  3. Issue the final invoice. When you've completed the service or delivered the good and are ready to invoice the remainder and recognize the revenue for the full work in your books, create a new invoice with a line item against your revenue account (e.g. "Sales"), for a total of 10,000, and add applicable tax rates. 
    Add another line item with the description "Advance payment applied", against the account "Unearned Revenue" and an amount of -5,000 (negative 5,000), and add applicable tax rates. 
    Your net invoice amount should now be 5,000 plus any applicable tax rates. You are now ready to send the invoice to your customer.
    At this stage, we've recognized a sale of 10,000 in your books, and the "Unearned Revenue" account should have a balance of 0.

  4. Record the final payment. When you receive the second payment from your customer, record a payment against the invoice in step 3, paid through the account where you received the money (e.g. bank account).

That's it. You've recorded an advance payment from a customer.