Managing deposits with invoicing software - SumUp

A down payment or deposit is an amount of money that is paid by the customer up front, before the goods or services are provided. The deposit acts as a partial ... ManagingdepositswithinvoicingsoftwareRequestinganinitialdepositordownpaymentonaninvoicecanbehighlybeneficialforasmallbusiness.Withincertainindustries,itmaybestandardpracticetorequireapercentageofthetotalamountduetobepaidupfront.StartinvoicingforfreeThisarticleexplainshowyourbusinesscanimplementdeposits/downpaymentswithinitsinvoicingandusethemtobettersecurefullpaymentsfromcustomers.Itlooksatwhenadepositistypicallyrequested,theadvantagesusingdownpaymentshas,andhowyourbusinesscanrecordthesetransactionswithyourinvoicingsoftware.SecuringasalewithadownpaymentAdownpaymentordepositisanamountofmoneythatispaidbythecustomerupfront,beforethegoodsorservicesareprovided.Thedepositactsasapartialpaymentandconfirmsthesale. Dependingonthebusiness,adepositmayberefundableupuntilacertaindate.Insomecases,forexample,itcanstillbereturnedwithinfourteendaysofpayment. Atothertimes,however,thedownpaymentisnon-refundable,meaningthatevenifthebuyerbacksoutofthesaleorisunabletopaythefullamount,theirdepositisn’treturnedtothem.  Ifadeposithasbeenpaidandthesalegoesaheadsuccessfully,thisdownpaymentshouldthenbedeductedfromthefinalpaymentamount.Forexample,ifanartistcommissionsapieceofartthatcost£10,000,theymayrequesta10%depositfromtheirclient.Astheclienthasalreadypaida£1,000deposit,thisdownpaymentcanbesubtractedfromthetotalamountdue,andthesalesprocessiscompletedoncetheremaining£9,000hasbeencollected.WhentorequestadownpaymentUsingdownpaymentscanparticularlyhelpcertaintypesofbusinesses.Theyarecommonlyusedinrealestate,orassecuritydepositsinvehiclerentals,forexample. It’suptothediscretionofthesellerwhetherornottheywanttorequestadownpaymentontheirsales.Ifasaleisparticularlyrisky,requestingadepositmaymakethesellerfeelmorecomfortableproceeding.Whenthesaleisparticularlylargeorrequiresthebusinesstoinvestinmaterialsorproductsthatcan’tbeeasilyresold,thedownpaymenthelpstocushionthebusinessagainstthefinancialriskoftheclientpullingout. Iftheclientdoespulloutofasaleafteraninvoicehasbeensent,acreditnotemustbeissuedtocancelthepaymentandbalancethebusiness'sbooks.Thedownpaymentthereforefunctionsasaformofcollateralforthetotalsaleamount,minimisesfinancialrisk,andhelpstoincreaseconfidencethesalewillgoaheadasthecustomerwon’twanttoloseanon-refundabledeposit.Often,abusinesswillonlybeginworkoncetheyhavereceivedadeposit.HowdownpaymentscansupportyourbusinessCollectingadownpaymentforyourworkcanimproveyourbusiness’scashflow.Itmeansthatyoucancoverallofyourbusinessexpenseswhilstyouworkontheproject.Forprojectsthattakeasignificanttimetocomplete,thedeposithelpstoprovideincomebeforethefinalpaymentisreceived.Adownpaymentdoesnotguaranteeyou’llreceivethefullpaymentforaproject,evenifit’snon-refundable.However,itdoesprovideyouthesecurityofknowingyou’llatleastreceiveaportionofwhatisowedandwillhelptopreventyourcompanyfromlosingmoney. Ifacustomerpaysadeposit,italsodemonstratesthattheyhavethemoneytocoveratleastaportionofthetotalandareseriousaboutthework.RecordingdownpaymentswithinvoicingsoftwareManyworkingwithWordandExcelinvoicetemplates willsimplyeditthedepositandaddittotheinvoice.Somethingsimilarcanbedoneinonlineinvoicing.Youcanprocessadepositinthesamewayasyouwouldforanyotherproductorservice.Simplycreateanewinvoiceandaddthedownpaymentasanitem.Makesuretolabelitas'Downpayment'or‘Deposit’andincludeanytermsandconditions,forinstance,whetherthisisrefundableornot.Whenyouthencreateasecondinvoiceforthetotalamountdue,youcanaddalinewithanegativeamountwhichreferstotheprepaidamount.Thiswillthenbesubtractedfromthetotal.Forexample,ifthetotalcostofapieceofcommissionedartis£10,000,butyou'vealreadycollecteda£1,000deposit,youwouldaddanitemlabelled‘CommissionedArtwork’pricedat£10,000,andthenanotherlinenamed‘Deposit’andregisterthisas-£1,000.Thetotaldueonthesecondinvoicewillthereforebe£9,000asthedeposithasalreadybeenpaid.Importantly,evenifyou'reonlyinvoicingforadownpayment,theinvoicemuststillfollowthesamelegalinvoicerequirementsasnormal.VATanddownpaymentsIfyourbusinessisVATregistered,youshouldincludeVATonyourdeposit,justasyouwouldforanyotherinvoice.ThetaxpointwillbeeitherthedatethatyouissuetheVATinvoiceforthedepositorthedatethatyoureceivethepayment,whicheverhappensfirst.  Ifyourtermsandconditionsallowforarefundofadeposit,youdonothavetoaccountfortheVATifit’sreturnedinfulltothecustomer.Ifhowever,thecustomerdecidesnottotakeupthegoodsorserviceandyoukeepthedownpayment,VATremainsdueonthemoneyyouhavereceivedandmustbeaccountedforwithHMRC.Startinvoicingforfree