Advance invoice

What it means

An advance invoice is issued for payment before goods or services are supplied. Unlike a proforma invoice, once the money arrives it becomes the basis for a tax document for the payment received.

For a VAT payer, receiving an advance creates a tax point - tax is due on money received although nothing has been supplied yet. After delivery a final invoice settles the advance.

The customer cannot deduct VAT from an advance invoice, even once it is paid. The right to deduct input tax comes only from the tax document for the payment received, which the supplier issues. Anyone who claims the deduction on the advance invoice claims it without a document that will stand up at an inspection.

How it works in practice

An advance received is not revenue: it is booked as a liability to the customer and only becomes revenue on delivery. This is the commonest point where the books and the "money arrived, so I have a sale" view part company.

With new customers an advance is the simplest risk control: nothing ships until the funds land, and questions of payment terms and collection never arise.

On an intra-Community supply of goods to another member state, receiving an advance does not trigger a tax liability. When a Slovak s. r. o. takes an advance from a customer in Czechia or Austria, no document for the payment received is issued and the supply is reported only after delivery, together with the EC sales list.

What to watch out for

The final invoice must settle the advance correctly, or the tax is paid twice or not at all. If the order is cancelled, the refund goes through a correcting document, not a quiet transfer back.

No document for the payment received is issued because delivery is only a few days away anyway. VAT on the advance, however, belongs to the VAT period in which the money arrived. When the payment lands at the end of one month and delivery at the start of the next, the tax is declared late, the control statement does not reconcile and late-payment interest follows.