Vendor/Customer Advance Payments in Microsoft Dynamics 365 Finance and Operations

Advance payment are very common business activity in any customer business for both vendor and customer but when we implement ERP to the organization the main ask from finance department is how they can tag advances paid to purchase/sales order.

So, in this blog we will talk about different ways of advance payments in D365. Here are possible scenario’s which we will be talking:

1. Vendor Advance
   1. Against Purchase order
   1. Direct Advance without Purchase order
2. Customer Advance
   1. Against Sales Order
   1. Direct Advance without Sales order

Scenario-1: Against Purchase order

Pre-Requisites: Map posting profile for prepayment

Step-1: Create PO and Specify Prepayment Amount/Percentage

Navigate to, All Purchase orders > New > Add all information > Purchase tab > Prepayment button > Enter Prepayment information > Save > Confirm PO

Step-2: View Open Prepayment Status and Post Prepayment Invoice

Navigate to, Accounts Payable > Purchase orders > Open Prepayments > Click New > Prepayment Invoice > Specify Information > Post

Step-3: Post Payment against Prepayment Invoice

Navigate to, Accounts Payable > Purchase orders > Open Prepayments > Click New > Payment Journal > Select Prepayment Invoice > Post

Step-4: Post Final Invoice and Apply Prepayment to Invoice

Navigate to, Accounts Payable > Purchase orders > Select Purchase order > Invoice > Enter Invoice information > vendor invoice Apply Prepayment > Select and Apply Prepayment > Post

Note-1: In this method prepayments are recorded against “Purchase order” and will not reflect in Vendor subledger report. That means if user wants to view advance payments as “Debit” in vendor transactions as open , he/she will not find because if you observe accounting entry in this process , advances are recorded in separate ledger as specified in Posting profile and Vendor balance is Zero after payment journal.

Note-2: So, if customer wants to tag “Advances “against purchase order they should keep separate track of advances using “Open Prepayments” report not with Vendor ledger/transaction report

Scenario-2: Direct Advance without Purchase order

Pre-requisites: Map Prepayment posting profile in AP parameters

Create Payment Journal and Mark prepayment

Navigate to, Accounts Payable > Payments > Vendor payment Journal > Create Payment Journal > Lines > Enter vendor, amount, bank etc..> Mark Prepayment > Post

Note: In this method Advances will be reflecting in vendor balance but this will not have any reference to Purchase order

Scenario-3: Against Sales order

Pre-requisites: Map Prepayment posting profile in AR parameters

Unlike vendor prepayment, customer does not have extensive prepayment feature, but one can tag Sales order in advance payment.

Step-1: Create Sales order and Copy SO number

Step-2: Create Payment Journal and Mark prepayment

Navigate, Accounts receivable > Payment > Customer Payment > Create New > Lines

Step-3: Enter SO number as Payment reference > Post

This is very important step to tag Sales order in payment journal as prepayment.

Step-4: view Prepayment information in Sales order

Navigate to, Accounts Receivable > Orders > Sales order > Sell Tab > Prepayment

Step-5: Post SO invoice and view balance

Note-1: In this process user can view advances received from customer in customer subledger report.

Note-2: User must enter SO number manually

Scenario-4: Direct Advance without Sales order

In this process, process will be same as above Scenario-3 , follow step-2 and post payment journal without specifying Payment reference as SO number.

That is it for this blog, hope this will help you to define the advance payments for customer.

Thank You!!! Keep reading and sharing!!!