Invoicing when client pays two installments

armabelle

Hi there

I do work that requires my clients to pay me 50% of the total up-front. I send them a quote with the amount and it states the amount and it also states that 50% is due to begin the project. My question is, if the client agrees to the quote is it correct practice for them to pay me 50% right after seeing the quote or should I send them an invoice to pay the first half and then a second invoice for the other half later? Up until now, I have been sending a quote then only one invoice at the end for the outstanding 50% part but not sure if this practice is correct?

m0rt

I always send an invoice for the deposit and then another for the final balance. I'm sure either way is fine but this way seems tidier to me in terms of a paper trail. There's more of a direct link between invoices and bank statements. Also the payment terms for the deposit and balance can sometimes be different (on receipt vs 30 days) so separate invoices allow for that.

armabelle

m0rt wrote: »

I always send an invoice for the deposit and then another for the final balance. I'm sure either way is fine but this way seems tidier to me in terms of a paper trail. There's more of a direct link between invoices and bank statements. Also the payment terms for the deposit and balance can sometimes be different (on receipt vs 30 days) so separate invoices allow for that.

Thanks for getting back to me. So then do you need to request details from your potential clients to whom you are sending the invoice so that you can add his/her details on the invoice? Sometimes my clients request a quote from me and I may only have their name and email address at that stage. Would I then need to request their details to stipulate on the invoice to be able to send them an invoice for the deposit?

m0rt

I mention the deposit / balance in my proposals in the costings section. Then once we've agreed to move ahead with the project, I ask either by phone or email if it's ok to send an invoice for the deposit. This is usually part of the discussion about project kick off. At that stage if I need an address or any additional info I would ask for it.

armabelle

m0rt wrote: »

I mention the deposit / balance in my proposals in the costings section. Then once we've agreed to move ahead with the project, I ask either by phone or email if it's ok to send an invoice for the deposit. This is usually part of the discussion about project kick off. At that stage if I need an address or any additional info I would ask for it.

ok thank you

In my case a lot of the projects might be small and I wonder if clients might find all that to be tedious. Would it be bad practice do you think, to just send a quote out with the whole amount containing a clause saying that 50% is required up-front and then sending an invoice at the end?

m0rt

You could simply ask as you go which way each client prefers.

armabelle

m0rt wrote: »

You could simply ask as you go which way each client prefers.

ok thank you!

Avatar MIA

Quotes are simply that and may not lead on to business.

When you are finished the actual invoice must correspond to the full amount of work undertaken.

Trojan

Sounds a bit more complex than it is in practice.

For once-off (non-recurring) projects, I send a quote/proposal document, usually with 2-3 options based on the discussions with the client.

The client agrees to go ahead with one of the options.

I invoice them, either in full with a 10% discount for upfront payment, or 50%, to be paid before work commences. Balance is invoiced before or at completion.

I don't ask for the invoice information, I get it naturally as part of the interactions leading up to the proposal document (name, email, business name, phone number).

Mr Clonfadda

may also depend on the length of time the project covers. The VAT man might be concerned with the VAT element of the deposit if the invoice isn't raised for a long period of time.

m0rt

Mr Clonfadda wrote: »

may also depend on the length of time the project covers. The VAT man might be concerned with the VAT element of the deposit if the invoice isn't raised for a long period of time.

Good point and another reason to invoice the deposit separately.

VincePP

A deposit is not subject to VAT as if a client forgoes the deposit by not fulfilling the contract, the deposit is seen as compensation for loss and vat is not applicable.

So the norm if I was doing it is to provide quote with condition of % deposit of the amount net of vat, when deposit is received a receipt of the amount is provided.

I don't think there's any requirement to account for the deposit on vat returns.

Other option is to pay a % in advance and invoice that % + vat - it will work out the same in he end, but if you are in an industry that would have regular cancellations (hotels are an example or a property lease where vat is applicable on rentals) the non vat route is best.

Mr Clonfadda

Hi VincePP

In the normal course of business you can ask for a deposit prior to commencing a job and then this would be billed with VAT after a certain period of time.

The revenue may deem an excessive period of time as an avoidance of paying VAT.

I am not aware of any legislation that would allow a VAT registered business to keep a deposit amount without returning VAT on it if a customer fails to proceed with a contract but i am more than happy to be corrected

VincePP

Mr Clonfadda wrote: »

Hi VincePP

In the normal course of business you can ask for a deposit prior to commencing a job and then this would be billed with VAT after a certain period of time.

The revenue may deem an excessive period of time as an avoidance of paying VAT.

I am not aware of any legislation that would allow a VAT registered business to keep a deposit amount without returning VAT on it if a customer fails to proceed with a contract but i am more than happy to be corrected

http://www.irishtimes.com/business/court-rules-no-show-deposits-not-liable-to-vat-1.950572

Also I have a few leases and vat is not added to rental deposit by any landlord even though VAT is applied to the quarterly lease payments

The ECJ ruled that the deposit is seen as compensation for loss incurred.

No vat loss would apply in a business to business situation as the deposit would not have vat detailed. - in a 50% deposit on a contract of €1000 + vat, the deposit would be €500 and no vat invoice would be provided. In a consumer situation where a vat inclusive price is provided, revenue would look at a reasonable time and I think that even for unpaid invoices this is about 12 months unless you have a very good reason.

Mr Clonfadda

thanks for the link VincePP I would be cautious about applying it to all types of business deposits.

A deposit on a lease is expected to be fully refundable so its a little bit different.

Avatar MIA

Mr Clonfadda wrote: »

A deposit on a lease is expected to be fully refundable so its a little bit different.

This is huge difference.

Also, rent and trade income are different tax schedules, with different rules.

VincePP

Mr Clonfadda wrote: »

thanks for the link VincePP I would be cautious about applying it to all types of business deposits.

A deposit on a lease is expected to be fully refundable so its a little bit different.

Only if all terms are adhered to.

For the OP it probably best to avoid the word deposit as some accountants will be very pedantic about it and just invoice 50% in advance and add the vat and describe it as agreed advance payment. That way it is like any service invoice.

m0rt

Clearly not leasing...

I do work that requires my clients to pay me 50% of the total up-front.