How-ToFinance & Operations

How to Handle Prepayments in Business Central

Learn how to configure and use prepayments on sales and purchase orders in Business Central, from setup through final invoice posting and credit memos.

Stein Sæstad
9 min read

Prepayments in Business Central let you invoice a customer, or pay a vendor, before the goods or services are fully delivered. The prepayment posts to a dedicated G/L account and is then applied automatically when the final invoice is posted.

This guide covers the full prepayment workflow for both sales and purchasing, including setup, posting, and the credit memo process for cancellations.

How Prepayments Work

When you post a prepayment invoice, Business Central creates a posted invoice and records the amount to a prepayment G/L account (defined in the posting group setup). When you later post the final invoice, the system reverses the prepayment entries and applies the full amount, so the customer or vendor account reflects the correct outstanding balance throughout.

Step 1: Enable Prepayments in Setup

Prepayments must be enabled in both sales and purchasing setup before they can be used on orders.

For Sales:

  1. Search for Sales & Receivables Setup using Alt + Q.
  2. On the General tab, locate the Prepayment section.
  3. Ensure Default Prepayment % is set if you want a global default (this can be overridden per customer or per order).

For Purchases:

  1. Search for Purchases & Payables Setup using Alt + Q.
  2. Confirm the same Default Prepayment % field is available and set as needed.

Step 2: Configure Prepayment G/L Accounts in Posting Groups

Prepayment amounts post to specific G/L accounts defined in your General Posting Setup.

  1. Search for General Posting Setup using Alt + Q.
  2. For each relevant combination of Gen. Bus. Posting Group and Gen. Prod. Posting Group, fill in:
    • Sales Prepayments Account, the G/L account for customer prepayments received
    • Purch. Prepayments Account, the G/L account for vendor prepayments paid

These accounts typically sit on the balance sheet as liabilities (sales) or assets (purchases) until the final invoice is posted.

Step 3: Set a Prepayment Percentage on a Customer or Vendor

You can set a default prepayment percentage at the customer or vendor level so it populates automatically on new orders.

For a Customer:

  1. Search for Customers using Alt + Q and open the relevant customer card.
  2. Navigate to the Payments tab.
  3. Enter a value in the Prepayment % field.

For a Vendor:

  1. Search for Vendors using Alt + Q and open the relevant vendor card.
  2. Navigate to the Payments tab.
  3. Enter a value in the Prepayment % field.

Step 4: Set the Prepayment Percentage on an Order

You can also set or override the prepayment percentage directly on an individual order.

For a Sales Order:

  1. Search for Sales Orders using Alt + Q and open or create the order.
  2. On the Prepayment tab of the order header, review or edit the Prepayment % field.
  3. If you want item-level control, you can set Prepayment % on individual sales lines.

For a Purchase Order:

  1. Search for Purchase Orders using Alt + Q and open or create the order.
  2. On the Prepayment tab, set the Prepayment % as required.

The system calculates the prepayment amount based on the percentage applied to line amounts. Tax is handled according to your VAT posting setup.

Step 5: Post the Prepayment Invoice

Once the order is ready and the prepayment percentage is set:

For Sales:

  1. On the Sales Order, select Posting from the action bar, then choose Post Prepayment Invoice.
  2. Confirm the posting date and select OK.
  3. Business Central creates a posted sales invoice for the prepayment amount and posts to the prepayment G/L account.

For Purchases:

  1. On the Purchase Order, select Posting, then Post Prepayment Invoice.
  2. Confirm the posting date and select OK.
  3. A posted purchase invoice is created for the prepayment amount.

After posting, you can view the prepayment invoice from the Prepayment Invoices action on the order, or from the customer/vendor ledger entries.

Send the prepayment invoice to the customer as you would any posted sales invoice. On the purchase side, the vendor’s invoice should match the prepayment purchase invoice you posted.

Step 6: Post the Final Invoice

When the goods or services are delivered and you are ready to invoice in full:

For Sales:

  1. Ship the goods (post a shipment) or confirm delivery.
  2. On the Sales Order, select Posting, then Post (or Post and Send).
  3. Select Invoice or Ship and Invoice as the posting option.

For Purchases:

  1. Receive the goods on the purchase order.
  2. Select Posting, then Post, and choose Invoice or Receive and Invoice.

Business Central automatically reverses the prepayment entries and applies the prepayment amount against the final invoice. The customer or vendor ledger entry for the final invoice will show the prepayment applied, and the outstanding balance reflects only what remains to be paid.

Step 7: Handle Prepayment Credit Memos

If you need to cancel or reduce a prepayment before the final invoice is posted, for example, because the order is cancelled, post a prepayment credit memo.

For Sales:

  1. On the Sales Order, select Posting, then Post Prepayment Credit Memo.
  2. Confirm the posting date.
  3. Business Central creates a posted credit memo that reverses the prepayment invoice entry.

For Purchases:

  1. On the Purchase Order, select Posting, then Post Prepayment Credit Memo.

After the credit memo is posted, the prepayment G/L account is cleared. You can then refund the customer or cancel the corresponding payment to the vendor as part of your normal payment process.

Prepayment Amounts by Line

If an order has multiple lines with different prepayment requirements, you can control prepayment at the line level:

FieldLocationPurpose
Prepayment %Order headerApplies to all lines unless overridden
Prepayment %Individual order lineOverrides the header percentage for that line
Prepayment AmountIndividual order lineSet a fixed amount instead of a percentage
Prepmt. Line AmountOrder line (calculated)Shows the calculated prepayment for the line

If you set prepayment on some lines but not others, only the lines with a non-zero percentage are included in the prepayment invoice.

If your orders involve foreign currencies, see How to Use Currency and Exchange Rates in Business Central for how exchange rate differences affect prepayment postings.