Nowadays businesses struggle a lot when it comes to collecting the payment. Especially, when you have delinquent clients, which are likely to delay the payment for not sure how many days. That’s where your business may find it difficult to manage customer orders and business finances, slowing down overall business growth.
To get rid of such issues, you can introduce advance invoice payment. It is a modern way of collecting payment where you can demand half of the money upfront, even before the completion of a service or product delivery.
So, knowing how to improve the collection process with advance payment invoices can help eliminate the need for debt to cover business expenses. Let us understand what is invoice for advance payment in detail.
What is an Advance Invoice?
An Advance invoice is a formal document, similar to a regular invoice, which is used to request a payment prior to the completion of service or the delivery of a product. With an advance invoice, businesses or freelancers can ask their clients to pay money upfront before delivering the goods or services.
Suppose you work as an event planner. A client hires you for a wedding event where you need to decorate the reception venue. So, you start preparations days in advance to secure the necessary equipment and gather labor. Instead of waiting until the event is over, you can issue an advance invoice to request a partial payment.
What are the Benefits of Sending an Advance Invoice?
Here are some perks of issuing an advance invoice to your clients. Check them out.
1. No Business Loans
Since an advance invoice helps you collect the payment early, there is no need to borrow money from others or apply for a business loan to run your daily operations. So, it will allow you to grow your business without the pressure of loan repayments and interest.
2. Covers Expenses Timely
With advance billing, the biggest perk you get is you can cover operational costs without any delay. You can expect a steady cash flow that will not only minimize the risk of financial strain but also allow you to tackle a sudden rise in business expenses.
3. No Payment Chasing
There’s no room for chasing late payments when utilizing the advance billing method. Businesses can avoid chasing payments and focus on what really matters to their business. Hence, it frees you up from unnecessary workloads.
4. Efficient Billing
An advance invoice can lead to an efficient billing process as you can automate invoices easily rather than investing more time in taking follow-ups. This approach further aids you in organizing accurate financial records.
What are the Disadvantages of Sending an Advance Invoice?
Now, let us look at what are the downsides of sharing an invoice for advance payment.
1. Refund & Disputes
In case the client’s requirements aren’t fulfilled after collecting the payment in advance, it may lead to potential disputes. Moreover, if you fail to settle the dispute, you may need to initiate a refund, resulting in strained client relationships.
2. Trust Issues
Demanding payment in advance may not be the right strategy for new customers as they may have concerns regarding service or product delivery. So, it is important to build trust before asking for an upfront payment. Otherwise, the new client will likely have trust issues.
3. Accounting Problems
If you are receiving payments prior to starting the work or delivering the product, you may encounter accounting complexities. In the later stages, you may not have an idea of how much payment was collected in case there are no transaction records in a general ledger.
Send an Advance Invoice in Seconds
Head to Moon Invoice where you can generate and send invoices professionally and receive the payment on time.
Types of Advance Payment
This is an important part where you need to decide which type of advance payment you require by considering the delivery of goods or services that you will provide. Now, advance payment can be of two types, either earned revenue or unearned revenue.
Earned revenue comes into effect when you have offered partial service or goods before you share an invoice with clients. Whereas, unearned revenue is when your client pays the full amount without receiving your services or goods. You will invoice a client once the work is completed or delivery is made.
In other words, it would be a liability because you owe something following the full payment collection from clients. So, the amount you receive will go directly to a deferred revenue account. Thus, according to the advance payment type, you need to specify in records if it is earned or unearned.
Advance Billing vs. Billing in Arrears
Below is how advance billing differs from billing in arrears.
| Advance Billing | Billing in Arrears |
|---|---|
| An advance invoice will ensure you have sufficient funds to carry out the work. This approach might not be suitable for new customers. | Billing in arrears means you are more focused on providing quality work that leaves a lasting impression on clients rather than asking for upfront payment. |
| Advance invoice helps you get the payment early, so you do not need to take follow-ups. But, if the final amount is high upon completing the work, you can provide a new invoice. | Businesses need to contact clients for payments frequently until they get paid. This is because they have not collected money in advance. |
| Advance billing comes with a risk of clients demanding refunds if their requirements aren’t fulfilled. This will ultimately lower the client satisfaction rate. | When billing in arrears, the client may barely ask for a refund. Since it allows clients payment flexibility, chances are they won’t make a refund request. |
| Ideal for SaaS-based companies, event bookings, and consulting services. | Suitable for freelancing or contractual services. |
Best Practices for Advance Billing
Below are some best practices for businesses to implement while accepting advance payment.
1. Prioritize online invoicing
Chances of advance payment approval are high when you present a clear and professional invoice on time. That’s what online invoicing promises. Issuing an online invoice not only lessens your workload but also encourages clients to fulfill the payments upfront.
2. Specify Payment Terms
Outline the payment terms in an invoice to avoid any confusion later on. You can also emphasize your refund policy to let buyers know if they are eligible to place a refund request. This will also minimize the chances of disputes.
3. Offer Multiple Payment Methods
Let your clients pay through their favorite payment method and complete the payment in advance. You can offer online payment modes such as credit cards, net banking, debit cards, or eWallets instead of cash.
4. Track Payments Separately
No matter how much money you receive upfront, track them separately via online tools. Centralize your advance payment details in such a way that you can easily filter out the clients who paid money in advance.
How to Keep Track of the Advance Invoice With Moon Invoice
A sophisticated invoicing software, Moon Invoice automates your invoicing process in a way that you can easily track invoices in the blink of an eye. Designed for growth-oriented businesses, Moon Invoice has alleviated invoice tracking and business document management.
You only can store unlimited invoices in the cloud-enabled software, Moon Invoice rather than keeping hard copies in archive boxes. There is no chance of misplacement because every document is safely stored in the cloud, offering easy accessibility to you.
Here’s how to track invoices quickly using Moon Invoice.
- Open Moon Invoice & Go to ‘Invoices’
- Start creating new advance invoices
- Later, find the right ones using the filter option
Invoice tracking is so easy on Moon Invoice that you don’t need to keep things in mind as everything is available at your fingertips. You can either filter out an invoice by status, dates, days, or customer’s name in a couple of clicks.
Track Advance, Regular, or Past-due Invoices Instantly
Whether it is an advance invoice or a past-due invoice, Moon Invoice finds it in just a fraction of a second.
Conclusion
To sum it up, we understand how businesses can demand payment upfront by issuing an advance invoice. But, make sure you consider an online invoice instead of a paper-based invoice. Online invoicing will not only improve chances of advance payment from clients but also aid in keeping accurate financial records.
Moon Invoice is the perfect online invoicing solution to facilitate advance billing. It is an all-in-one platform to manage and track your advance payments without any extra effort. Try a free trial to know how it works.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
