After completing this lesson, you will be able to:
Understand billing down payments and billing on account
Prepayments in Customer Projects
Customer projects support two types of prepayments; Payment on account and Down payment.
Prepayments are specified from the project stage "Contract Preparation" when billing due dates are being specified for the billing items. Due dates for prepayments need to be assigned the corresponding prepayment type in the field "Item Usage", as well as the amount of the prepayment.
Time and Expenses billing items support both prepayment types; Payment On Account and Down payments.
Fixed Fee billing items only support Down payments.
Other billing item types (usage based and periodic service) do not admit prepayments.
The steps in the prepayment process are as follow:
Prepare down payment or billing on account in project billing item: Billing items of type time and expense or fixed fee, include at least one down payment or/and billing on account billing date.
In the application Manage Project Billing, the work packages (billing elements) with pending prepayments are indicated with a red triangle in the To Bill column.
Select the billing items and click on Prepayment. A pop up window will inform you of the type of prepayment and the amount for which a prepayment billing request is created.
Differences in Accounting
Down payment requests are not the same as invoices as they can be issued without prior delivery of goods or services. When the down payment is received and posted, it clears in full the down payment request document even if the amount received is lower. The received amount is classified as a "contract liability" and is not recognized as revenue at that moment but is classified as deferred revenue. Down payments are reflected in Accounts Receivable in the balance sheet.
When the project is billed, AR down payments are reversed against the billed amounts until they are completely cleared. This eliminates the "contract liability" and deferred revenue created by the down payment.
On account payments are actual revenue received but not considered as billed revenue, rather they are applied against open invoices reducing the outstanding balance due from the customer. On account payments are reflected as "deferred revenue" in the balance sheet as the goods or services for which the payment is done are still not delivered or billed. The received on account amounts are posted on a G/L account called "on account issued". These amounts are actual income but are automatically deferred through a negative entry in an "on account utilized" account to avoid recognition.
When billable items are generated in the work package, the revenue they generate is recognized (EBRR) and create in the balance sheet a positive "on account utilized" posting and clears the "on account issued".