1. Accounts Payable Implementation Guide
  2. Understanding Prepayments

Understanding Prepayments

Sometimes you must pay for goods or services before you receive an invoice. For example, you might need to:

  • Pay a travel advance for employee expenses.

  • Pay a deposit on services to be rendered at a later time.

  • Take advantage of a discount.

For situations in which you have not yet received an invoice, you can enter a prepayment voucher for an advance payment. When you enter a prepayment voucher, the system creates a negative pay item for every pay item on the voucher. You can use only the Standard Voucher Entry program (P0411) to create a prepayment voucher.

The process for entering prepayment vouchers uses AAIs to determine the GL expense distribution if no account number is entered in the G/L Distribution Account processing option. The PCxxxx AAI is used, where xxxx is the GL offset in the processing options for the Standard Voucher Entry program.

A prepayment voucher usually has pay items that net to a zero amount. If that is the case, no GL distribution form appears during prepayment voucher entry. A GL distribution form appears if an amount to distribute exists in the general ledger, which typically happens when different pay items on the voucher have different tax rates and areas.

You can pay the prepayment voucher using either automatic payments or manual payments. If you are going to create the payment in the next batch of automatic payments, you enter the prepayment voucher and then follow the regular procedures for processing automatic payments. To make the payment using manual payments, you create the prepayment voucher and then pay it using manual payments with voucher match.

Later, when you enter the voucher for actual expenses, you enter it just as you would enter a standard voucher. You can then apply the pending negative pay item to the actual voucher manually so that the amount owed to the supplier is reduced by the amount of the prepayment. Or you can change the pay status of the negative pay item to approved and let the system apply it to any open vouchers for that supplier by running the automatic payment process. The advantage of the manual method is that you can select the specific voucher that closes out a specific negative pay item. The advantage of the automatic method is that the system automatically nets any negative pay items against any vouchers for the same supplier. When you use the manual method, use the Prepayment Selection program (P0411P) to match the reversing pay item of the prepayment voucher with the voucher for actual expenses that was submitted.