There may be an instance when you receive a prepayment on a job before you have sent out an invoice. These instructions will show you how this can be treated in Xero. 

Please note: the GST treatment of prepayments is dependent on many different factors. Please check with your advisor to ensure that GST is treated correctly.

To code the prepayment:

  1. Click “Add details”
  1. Click on the dropdown arrow next to “Direct Payment” and select “Prepayment.”
  1. Fill in the prepayment details as below:
    1. From – this will automatically fill in the payee as per the bank statement. You may need to update this to the contact’s name already in Xero.
    2. Date – leave as is. This should be the date of the bank transaction
    3. Invoice # – leave as is. This is auto populated from Xero.
    4. Reference – this is optional. If there is a specific job or quote, you may wish to make reference to it here.
    5. Branding – select the relevant invoice branding. If you only have one version of invoice template, this will be “standard”
    6. Description – add a description as necessary
    7. Account – select “Prepayments.” Contact your advisor if you do not have this code.
    8. Tax Rate – check the GST treatment with your advisor
  1. Check the total agrees with the bank feed amount. Once done, press “Save Transaction.”
  1. Press OK

By doing the above steps, Xero creates a prepayment. It effectively sits as a sales credit note, ready to be applied against the actual invoice once this is raised. 

To offset the prepayment against the invoice:

  1. Raise the sales invoice as usual. When you press “Approve” you should get the below notification. Select “Allocate.”
  1. Enter the amount of the prepayment in the highlighted box. Then press “Allocate Credit.”
  1. You will then be reverted back to the invoice, which will now show the amount due as the total less the prepayment.