How to Set Up an Invoice For Advance Payment
There are many different circumstances in which a freelancer or business owner will issue an invoice, and all of them are for the same purpose – requesting payment for a product or service.
However, in some instances, there is a need to invoice for payment in advance. That is, before the provision of service or the final delivery of a product. In this case, you will send an advance payment invoice asking the customer for an upfront payment.
Advance payment invoices are most commonly used when the order is a larger one, and the vendor requires payment in advance to secure the order. Another example is when the delivery schedule is very long, or the service is being provided over a longer period of time. Advance invoice payments are also often used when the customer is paying a regular retainer rate for an upcoming billing period.
Other reasons for requesting advance payment is when you need to outlay expenses covered by the customer in order to deliver the product or service. Plus, when working with a new client or if you have some reason to doubt the client’s reliability, it is a good idea to send an advance payment invoice to make sure you are not left out of pocket after the fact.
What Are The Differences Between a Regular And an Advance Payment Invoice?
In many ways, an advance payment invoice is no different than a regular invoice. However, there are certain elements that must be included in an invoice for advance payment to make sure that the terms and situation are understood by both the freelancer and customer. Let’s take a look at what these are:
Clearly state that it is for an advance payment
An advance payment invoice must clearly state that fact. This can be done in two ways: first, by including a heading on the invoice that says “Advance Payment Invoice”. Then, there can be no confusion. Another way to indicate that it is an advance payment invoice is by including “Advance payment for….” in the line item description, followed by details about the product or service being paid for in advance. For example, “Advance payment for retainer fee – March 2020” is a clear description of the request for upfront payment.
Connect it to a customer order
Often, an advance payment invoice is following up on a customer order or proforma invoice that was sent to the customer previously. Now, when creating the invoice requesting advance payment, it is important to link it to the relevant customer order. This is easily done by including the customer order number or proforma invoice number on the advance payment invoice. You can do this by inserting the number in the invoice heading or item description.
Stipulate any special conditions
An invoice for advance payment may have different terms and conditions than a regular invoice. For example, it could be that the product or service will only be available for delivery once the advance payment is complete. Or the advance payment must be paid by a certain date in order to secure the price specified in the invoice. Whatever special conditions you have agreed upon, make sure to include them clearly in the advance payment invoice.
Ideal for partial payments
Invoices for advance payments are a good option if you are charging partial payment upfront. For example, say you are charging an advance fee of 30% of the total cost; this should be indicated on the advance payment invoice. Then, the final invoice will be for the outstanding balance upon delivery of the goods or completion of the service. If you choose to invoice for a partial payment in advance, make sure to reference the initial advance payment invoice in the final invoice for the payment balance.
Advance Payment Invoicing - Best Practices
If you are going to be invoicing for advance payment, here are few tips to make sure you do it in the most effective way.
Send in a timely manner
When working with advance payments and partial payment, the project or sale is probably hinging on the advance payment invoice. Particularly if the transaction is time-sensitive, make sure to send the invoice for advance payment in a timely manner, so you can give the customer enough wiggle room to send the advance payment. Even if it is not a rush job, it is still good practice to send the advance payment invoice as soon as possible. You don’t want the customer to forget about the deal, or lose interest in the meantime.
Be polite and professional
When requesting advance payment, the job won’t start until the payment is received. Therefore, you want to encourage the customer to pay as soon as possible, so you can get going on the work and secure the deal. Make your advance payment invoice polite, professional and firm. This is partly done by creating an attractive, appealing layout and design, including your business logo and brand colors. It also comes from the language you use, whether in the terms and conditions that make the situation clear or even in a personal message for the customer to remind them of the need to pay in advance.
Be flexible according to the specific client
There are different reasons that you may be choosing to send an advance payment invoice, so there is also a need to be flexible with different customers. For example, if this is a new customer, and you are not sure how reliable they are, you might decide to invoice for advance payment of 80% or even 100%, so you are assured that you will be paid. If it’s a customer you already know and have a good relationship with, you might just charge in advance only for expenses you need to outlay upfront. There are no rules – consider each customer separately and create an advance payment invoice that is best for them.
Make sure everything was agreed upon before
Requesting advance payment is usually something that is understood and agreed upon in advance. You don’t want to affront a customer with an unexpected invoice for advance payment that will put them on the defensive. Make sure to discuss the need for advance payment openly and directly with the client, and get a casual verbal agreement before putting it in writing and sending the advance payment invoice. In business, no one likes surprises, and that’s especially true with payment requests.
Accompanying Invoice Letter
When requesting funds in advance, it is even more important to include an invoicing letter. Why? A well-crafted invoice cover letter sets the stage for the invoice itself and makes it clear to the customer what the invoice is all about. When it comes to advance payment invoicing, context is very important. The customer should be able to understand very quickly exactly what the advance payment being requested is for, what it covers, what it guarantees, and what is the expected timeline for delivery of goods or completion of the project.
The cover letter for an advance payment invoice should include as much detail as possible to provide all the information necessary for the customer to feel confident and comfortable. This includes all relevant deadlines and dates, for both parties, and also any reference numbers, such as customer orders or proforma invoices, or if part of a partial payment, then include the previous relevant invoice numbers.
The cover letter should be clear and professional but also encouraging. Therefore, make sure it is branded with the logo and colors of your business, so it is easily identifiable as coming from your company. Include a brief description of the items that require upfront payment, such as expenses necessary to secure the supply of the product or service. And of course, as with any cover letter for an invoice, be friendly and use it as an opportunity to cultivate the relationship with the customer in a positive direction.
Accompanying Invoice Letter
When requesting advance payment, there’s no room for a “fly-by” approach. Everything should be planned out, mutually agreed upon with the customer, and outlined clearly in the advance payment invoice and accompanying cover letter. All documents should be created with a quality feel, based on the most suitable advance payment invoice template for your business needs. This is the best and only way to make advance payment invoicing a success.