Advance Payments to Suppliers

Advance Payments to Suppliers

Advance payments to suppliers are payments made before goods or services are received or before a purchase bill is created. These payments are common in business transactions and help secure orders, manage cash flow, and maintain good supplier relationships.

What are Advance Payments to Suppliers?

Advance payments to suppliers are payments made in advance of receiving goods or services or before a purchase bill is generated. These payments are recorded as advances and can later be adjusted against purchase bills when goods are received or services are rendered.

When to Use Advance Payments

Advance payments to suppliers are commonly used in the following scenarios:

• Securing orders from suppliers, especially for large or custom orders
• Meeting supplier payment terms that require upfront payments
• Making deposits for goods or services to be delivered later
• Prepaying for services or subscriptions
• Building trust with new suppliers
• Taking advantage of early payment discounts

Recording an Advance Payment to Supplier

Step 1: Navigate to Supplier Payment

To record an advance payment:

1. Go to Suppliers → Supplier Payment
2. Click "Add Payment" or "New Payment"
3. Select the supplier who will receive the advance payment

Step 2: Select Payment Type as Advance

When entering payment details:

• Select "Advance Payment" as the payment type
• This indicates the payment is not yet linked to a specific purchase bill
• The system will track this as an advance balance for the supplier

Step 3: Enter Advance Payment Details

Fill in the advance payment information:

• Payment Date: Select the date when the advance payment is made
• Payment Amount: Enter the advance payment amount
• Payment Method: Select how you're making the payment (Cash, Bank Transfer, Cheque, etc.)
• Account: Select the account from which the payment is being made
• Reference Number: Enter cheque number, transaction ID, or reference if applicable
• Notes: Add notes about the purpose of the advance payment (e.g., "Advance for Order #12345")

Step 4: Save the Advance Payment

Review and save:

1. Verify all details are correct
2. Ensure the payment type is set to "Advance"
3. Click "Save" to record the advance payment
4. The supplier's advance balance will be updated

Advance Balance Tracking

After recording an advance payment:

• The supplier's advance balance increases by the payment amount
• The advance balance is shown in the supplier's account details
• You can view all advance payments in the supplier's transaction history
• The advance amount is available to be adjusted against future purchase bills

Adjusting Advance Payments Against Purchase Bills

When you receive goods or services and create a purchase bill:

1. Create the purchase bill as usual
2. During payment allocation, the system will show available advance balance
3. Select the advance payments you want to apply to the purchase bill
4. The advance amount will be automatically adjusted against the bill
5. If advance amount is less than the bill amount, you can make additional payment
6. If advance amount is more than the bill amount, the excess remains as advance balance

Multiple Advance Payments

You can record multiple advance payments to the same supplier:

• Each advance payment is tracked separately
• All advance payments are shown in the supplier's advance balance
• You can apply multiple advance payments to a single purchase bill
• The system allows you to select which advances to apply

Viewing Advance Payments

You can view advance payments through:

• Supplier Details: View advance balance in supplier account
• Payment History: See all advance payments in payment list
• Supplier Statement: Advance payments appear in supplier statements
• Payables Reports: Monitor advance balances in reports

Advance Payment Scenarios

Scenario 1: Full Adjustment

When advance payment equals purchase bill amount:

• Apply the full advance amount to the purchase bill
• The purchase bill will be marked as fully paid
• No additional payment is required
• Advance balance becomes zero

Scenario 2: Partial Adjustment

When advance payment is less than purchase bill amount:

• Apply the full advance amount to the purchase bill
• Make additional payment for the remaining balance
• The purchase bill will be marked as fully paid
• Advance balance becomes zero

Scenario 3: Excess Advance

When advance payment is more than purchase bill amount:

• Apply advance amount equal to the purchase bill amount
• The purchase bill will be marked as fully paid
• The excess advance remains as advance balance
• Excess can be applied to future purchase bills

Best Practices for Advance Payments

• Always add clear notes about the purpose of advance payments
• Use reference numbers to track advance payments
• Set reminders to follow up on deliveries after making advances
• Regularly review advance balances to ensure they're being adjusted
• Keep supporting documents for advance payments
• Monitor suppliers with large advance balances
• Establish clear terms with suppliers regarding advance payments
• Reconcile advances with received goods/services regularly

Advance Payment Security

To ensure advance payments are secure:

• Verify supplier credentials before making large advance payments
• Use secure payment methods (bank transfers with proper documentation)
• Maintain proper documentation for all advance payments
• Set limits on advance payment amounts if needed
• Follow up regularly on delivery commitments

Related Articles

Learn more about:

• Recording Supplier Payments
• Partial Payments to Suppliers
• Payment Reconciliation
• Payment Due Tracking

Advance payments to suppliers are an important part of managing supplier relationships and cash flow. EquiBillBook makes it easy to track and manage advance payments, ensuring they're properly adjusted against purchase bills when goods or services are received.