Dynamics 365: Pre-payments for Vendors

It is not too often that a company is jumping up and down to pay bills early, am I right? But there is that occasion, maybe a discount or the promise of a gift basket of fruit for a pre-payment! Whatever the reason, Dynamics 365 can handle this in a couple of different ways. We will quickly review these methods and some pitfalls.

It is possible to create a prepayment invoice tied a purchase order or a prepayment journal voucher; a journal entry that is used to mark as prepayment vouchers against a purchase order.

invoice vs journal dynamics 365 vendor pre-payment

Before the bout begins, set the stage with a quick utility action in the module Accounts payables> Setup> Vendor posting profiles and make sure you have a Prepayments profile setup. This should include the general ledger account to which the payments will be attributed.

vendor posting profiles d365

Then make sure the prepayment profile is active in Accounts payables> Setup> Accounts payables parameters> Ledger and sales tax. Select the new posting profile by using the posting profile for payment journal with prepayment parameter.

First up, the Prepayment invoice. This is commonly used when a vendor sends an invoice to a business to request a deposit or payment in advance of the goods or services being delivered. The invoice is processed and paid as usual and the prepayment value is attached to the purchase order.

dynamics 365 create or edit prepayment

This is done by clicking on Prepayment on the purchase tab > Prepay section of the purchase order. Then the prepayment will be applied on the final PO invoice. Once the remainder of the goods or services are received the remaining invoice can be settled as well.

The Prepayment journal requires that the user create and post a payment journal. On the Payment tab of the line select the prepayment posting profile that was created.

dynamics 365 vendor payments

This will be posted to the ledger accounts defined in the posting profile that was created or identified above. If it is desired, the prepayment can be applied to an open PO on the action pan > Settle > Open transactions. Marking the payment will attach it as a prepayment to the PO.

If the prepayment was not settled it can manually be done from the vendor page. Keep in mind that there are tax implications that occur during this option; taxes are calculated initially and may be reversed once the final invoice is received and processed.

One additional word of caution, you will run into an error if the PO total is lower than the prepayment assigned. This may require you cancel the prepayment or adjust the PO.

Hopefully, this quick look at prepayments will help with configuration and general use. Please check out our additional related blogs if you have a moment:

Dynamics 365 for Finance and Operations – Uh Oh! Posted the Vendor invoice to the wrong Purchase Order! Now what?

Dynamics 365 for Finance and Operations – Focusing on Purchase Order Returns

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