Dynamics Community Forum Thread Details

SCENARIO: We have POs for physical goods where the vendor contract is structured as milestone-based payments. The goods are delivered as a single physical unit at the end of the contract — not in parts. However, vendor payments are triggered at multiple milestones throughout the project lifecycle.

Example PO:

Item: stocked inventory item
PO Qty: 1 EA
PO Value: $ 100,000
Physical receipt: 1 unit received in full at project completion

Milestone payment schedule:

10% (SGD 10,000) — Mobilisation (before physical delivery)
40% (SGD 40,000) — On delivery
20% (SGD 20,000) — Installation (post delivery)
20% (SGD 20,000) — Testing & commissioning (post delivery)
10% (SGD 10,000) — Final handover (post delivery)

CURRENT WORKAROUND & THE PROBLEM IT CREATES:
The team has been posting each milestone vendor tax invoice as a Prepayment Invoice. This was done because D365's standard 3-way match requires quantity-based receipt matching, and the goods are not physically delivered until the end of the project.

This has created a balance sheet distortion — the accrued payable from the product receipt is never reversed (since prepayment invoices bypass the standard AP accrual reversal), while the prepayment on orders balance keeps accumulating. Both sides of the balance sheet are overstated simultaneously. Auditors have flagged this.

WHAT WE'VE TRIED:

Procurement category line (no item number): Partial invoicing by amount works cleanly and the accounting entries are correct. However, this bypasses inventory entirely — no on-hand quantity update, no inventory costing transaction. Not suitable for our scenario since the goods need to be physically received into inventory stock.
Decimal quantity receipts on EA unit: Our EA unit supports decimals. Technically we can post a receipt for 0.20 qty at milestone 1. However, the goods are physically received as 1 complete unit only at project completion — posting 0.20 of a gate into inventory at milestone 1 (when nothing has been physically delivered yet) misrepresents inventory reality and creates incorrect on-hand records throughout the project.
Multiple PO lines — one per milestone: This works within D365 but the PO document shared externally with the vendor must reflect 1 unit at the full contract value as per the signed agreement. A multi-line PO showing 5 quantities conflicts with the vendor contract and causes commercial disputes.
Partial invoice by unit price adjustment after full receipt: After posting the full product receipt (1 unit), we attempted posting a vendor invoice for 1 qty at a reduced unit price (e.g., SGD 10,000 instead of SGD 100,000). The AP invoice approval workflow blocks posting when the invoice total does not match the PO line total. This is an enforced financial control in our environment.

OUR QUESTIONS FOR THE COMMUNITY:

Is there a standard D365 F&O feature or configuration that supports milestone-based invoicing against a single physical-unit PO — where the goods are received in full at the end but payments are triggered at percentage milestones both before and after delivery?
For milestones occurring before physical delivery (e.g., mobilisation payment at 10%), is Prepayment Invoice actually the correct and intended D365 approach? If so, what is the right process to settle and clear those prepayments cleanly at the time of final invoice posting so the balance sheet is corrected?
For milestones occurring after physical delivery (when the full product receipt is already posted), what is the recommended way to post multiple partial vendor invoices against a single fully-received PO line without triggering the invoice totals matching workflow block?
Has anyone implemented Payment Schedules on Purchase Orders in D365 to handle this type of scenario? Does it control invoice posting timing or does it only manage payment due date scheduling on an already-posted invoice?
Are there any ISV solutions or Microsoft-recommended implementation patterns specifically for capital procurement with milestone billing in D365 F&O?

Any guidance or real-world experience from the community would be really appreciated!

Categories:

Dynamics 365 Finance