What's a prepayment?
A prepayment is also known as an upfront payment, customer deposit, or retainer. Because you technically owe your contact the prepaid amount until you deliver the promised services or products, this type of received money transaction isn't income; it's a liability.
How do I request a prepayment?
To request a prepayment, use a money request, not an invoice.
What if I'm asked for an invoice for the prepayment?
You should explain to your contact that this is a prepayment. In your books, it’s a liability. In their books, it’s an asset. Issuing an invoice for this type of transaction isn’t proper accounting. Instead, the prepayment should be covered by a contract. An informal email agreement works fine. You can also describe the reason for the prepayment in the memo of your money request.
How do I categorize a prepayment?
In the transaction screen, first choose the contact who prepaid you. looch assigns prepayments to contacts, so this is important. Later, you will be issuing an invoice to this contact.
Tap the unreconciled category to open up the category list. You want to assign the following category to this received money transaction:
Category type: Short-Term Liabilities
Group: Prepayments From Contacts
Category: <Contact>
looch should populate this category for you in your Top 5. You can also use the search bar to type in your contact's name or use the category type drop-down menu to skip to Short-Term Liabilities.
I’ve completed the job. What are the next steps?
Your contact received the deliverables for which they sent you a prepayment. It's now time to issue an invoice.
Some important things to keep in mind:
The invoice date is the date on which the deliverables were sent. If you performed services, it’s the date on which the services were completed. For digital deliverables, use the date on which everything was sent. For physical products, the invoice date is the ship date, not the delivery date.
The invoice should cover everything. You should issue a single invoice that covers the full amount of the deliverables, shipping, and any extra charges that were agreed upon.
Before sending the invoice, apply the prepayment. Do this by selecting both the invoice and the prepayment transactions under the bill pay tab in the contact profile. Tap pay, confirm, and you're done!
When you send your contact the invoice, they will see that their prepayment was applied. If they have a balance, they'll be able to pay it using the payment portal.