Allow customers to pay in advance

Damian Funnell avatar
Written by Damian Funnell
Updated over a week ago

Prepayments are payments taken in advance of you providing a product or service to your customers. They effectively allow the customer to build up a credit balance with you.

Panacea makes it really quick and easy to accept and use prepayments and our prepayment functionality is, of course, fully integrated with Xero.

Understanding Prepayments

Prepayments are recorded against the customer making them. They're similar to a lay-buy, where the customer makes payments in advance of receiving the goods or services they want.

A customer can still have an 'on account' balance (i.e. a balance owing for invoices that have been charged to their account) and a prepaid balance. These are two separate things and, although you can use a prepaid balance to pay off 'on account' invoices, they don't automatically cancel each other out.

Prepayments are fully integrated with Xero. However, Panacea can only use prepayments that were created natively in Panacea. If the prepayment wasn't created in Panacea, then it's not available for Panacea to use. This is a limitation of the Xero API itself.

Because of the various accounting practices surrounding prepayments, prepayments can be a bit more difficult to understand in Xero, so it may pay to get a bit of advice on how prepayments are handled from your bookkeeper or accountant.

Prepayments can be accepted in any amount the customer wishes and they can be used in any amount up to the total prepaid balance. A customer can make five $20 prepayments (for a prepaid balance of $100), for example, but then use that prepaid balance to pay an invoice of $90 (leaving them with a prepaid balance of $10).

Unlike with other payment types, once you have applied a prepayment to an invoice you will not be able to remove payments from that invoice. For example, if the invoice is closed, you will not see the red padlock icon next to it in the list to let you reopen the sale. This is because of limitations with the Xero API (Xero doesn't allow prepayments to be removed from an invoice once they've been applied).

Accepting Prepayments

Accepting prepayments couldn't be easier. You can do so from the Payments screen (click SALES - Payments) or the Payments tab of the Customer screen. You can accept Prepayments for any customer, whether or not they are enabled for on account invoices.

To create a prepayment, simply click on the '+' icon in the top right hand corner of the payments screen and choose 'Prepayment' from the drop-down list, as illustrated below:

The 'New Prepayment' window will appear, as illustrated below. Simply enter the customer name (this will be prepopulated if you started at the Customer screen), the amount, payment method, date and time of the prepayment. We recommend leaving the date and time as-is (i.e. current date and time) when accepting prepayments, as it can cause accounting difficulties if you change these.

Once complete just save the prepayment it will appear in the payments list and the prepaid balance will be displayed against the client:

Using Prepayments

Prepayments can only be used by the clients who made them. In other words, you can't use prepayments belonging to one customer to pay an invoice belonging to another.

To use a prepayment, simply create a sale as normal and click the 'pay' icon in the top left hand corner. If the customer has a prepaid balance you will see this in the payment side panel, as illustrated below, and a 'PREPAYMENT' payment option will appear. Enter the amount to be paid via prepayment and click the 'PREPAYMENT' button

And that's it! The specified amount will be deducted from the clients prepaid balance and used against the invoice.

Refunding Prepayments

You can issue refunds to clients who have a prepaid balance, but who have asked for their money back. Note that you can only refund up to the client's prepaid balance amount.

Don't confuse refunds and returns - refunds are only used to refund unused prepaid balances.

If you use the Xero integration then you will find that refunding the prepayment creates a debit transaction against the 'Panacea Prepayments' account in Xero and a credit transaction in your default bank account. You will need to reconcile this credit transaction correctly based on how you refunded the prepayment to the customer.

To issue a refund simply click the '+' icon at the top of the payment screen and choose 'Refund' from the drop-down list.

The 'New Refund' window will appear, as below:

Enter the customer's name, refund amount, payment method (this is the method by which you will offer the refund - this may be different to the payment type the customer used when making a prepayment), date and time and save the refund. The refund will appear in the payments list, as below:

You can then issue the refund to the client.

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