How to Set Up and Use Customer Prepayments on Sales Orders in Dynamics 365 Finance and Operations
With the release of version 10.0.4, Microsoft has introduced the ability to process Customer Prepayments against Sales Orders in Dynamics 365 Finance and Operations.
When you use this feature, the system generates a prepayment invoice before the goods or services on the Sales Order are delivered. After delivery, when you create the final invoice, the prepayment amount is settled against the final invoice. This helps you manage cash flow more effectively and streamline accounts receivable, ensuring prepayments are correctly tracked and applied to future invoices.
Mastering Customer Prepayments in Dynamics 365 Finance and Operations: A Step-by-Step Guide
In this blog, we will walk through the steps to enable and configure this feature and highlight how you can process customer prepayments in your Dynamics 365 Finance and Operations environment.
Let's start by looking at how you can get started.
Prepayments in Dynamics 365 Finance and Operations: Set Up and Configuration
Here are the steps you can follow to configure prepayments in Finance and Operations to ensure they work effectively for your business.
1. Enable the Feature
In Feature Management, Enable the Feature "(preview) prepayment customer invoice feature."
2. Create a Prepayment Sales Category
Do this for the Posting of the credit account when processing a Prepayment invoice.
3. Go to the new posting option
When you enable this feature, you will see a new posting option available. You can then use the "Sales Order" tab to configure the credit main account that you will use to process Prepayment invoices.
4. In Accounts Receivable parameters, configure the three settings listed below
- On the "Updates" tab, mark off whether or not you need the sales order confirmation to create a prepayment invoice. This is an optional step required to confirm the Sales Order before processing a customer prepayment.
- On the "Ledger and sales tax" tab, there will be a new field called "Prepayment Application policy." Here you will have two options:
- Notification: For this one, you will manually apply prepayments to the final invoice
- Automatic: A background process automates the application of prepayments to sales orders upon full payment of the Prepaid invoice
- On the "Number sequences" tab, you will see four new number sequence references to configure:
- Prepayment invoice: This is used to create the Prepayment Invoice number
- Prepayment invoice voucher: Provides a voucher that creates the Prepayment Invoice
- Prepayment invoice reversal: You can use this to create an invoice number that gets settled against the Prepayment Invoice upon payment of the prepayment invoice
- Prepayment invoice reversal voucher: This creates the Prepayment Invoice Reversal invoice
5. Enable the automated process to settle the Prepayment invoice against the final invoice
To do this, verify that the "Automated prepayment posting" process is configured for a repeat interval of one minute. You can do this by following these steps:
- Go to System Administration> Setup > Process Automations
- Click the Background Processes tab
- In the list, find the "Automated prepayment settlement posting" option
- Click Edit
- In the "EXECUTION DETAILS" Fasttab, verify or alter the "Repeats" field to be "Minute" and the "Repeat interval" to be "1."
- Finish the setup by closing the page.
At this point, you have configured the system to process prepayments against Sales Orders and can move on to the next phase.
Using Prepayments in Dynamics 365 Finance and Operations
Once this feature is enabled and configured, the steps to process a customer prepayment are:
- Add a Prepayment to a Sales Order
- Create and post the Prepayment invoice
- Record the customer payment of the Prepayment invoice
- Apply the prepayment against the Sales Order
- Create the final invoice for the Sales Order
Let's take a look at these steps in more detail:
Step 1 - Add a Prepayment to a Sales Order
- Go to Accounts Receivable> Orders > All sales orders.
- Select an existing Confirmed Sales order, or create and confirm a new Sales Order.
- On the Action Pane, click Invoice > Prepayment proposal.
- In the Prepayment type field, select either ‘Percent’ to have the system calculate a prepayment amount, or select ‘Fixed’ to establish a specific dollar amount for the prepayment. In the Sales category field, enter the Prepayments Sales category.
- Click save, then close the page.
Step 2 - Create and Post the Prepayment Invoice
- On the Action Pane > click Invoice > Prepayment invoice.
- Click Post.
- Close the page.
Step 3 - Record the Customer Payment of the Prepayment Invoice
- When the payment is received, apply the payment against the Prepayment invoice in a Customer payment journal.
- Select the customer from the Customer payment journal line, then click Settle Transactions. The prepayment invoice will be available to select for settlement.
- Select the Mark check box.
- Click OK, then process and Post the payment.
Step 4 - Apply the Prepayment Against the Sales Order
- Navigate to the Sales Order, then on the Action Pane > click Invoice > Apply prepayment.
- Select OK.
Step 5 - Create the Final Invoice for the Sales Order
- While posting the final invoice, a new Fasttab parameter will appear that says "Prepayment invoice."
- On that parameter, select the prepayment to be applied. Click OK to post the invoice.
It's important to note that you will need to alter the Invoice format to show the value of the Prepayment to reflect the new amount due. The invoice will post for the full amount of it, not the net due amount.
Until the automated background process has been completed, the customer's transaction will show the final invoice open for the full amount of the Sales Order.
Once the process is executed, the prepayment invoice will be reversed and the payment for the prepayment will be applied to the final invoice. From the screenshot below, transactions posted against the Customer account are as follows:
- Voucher PPIV-000000007 is the Prepayment Invoice
- Voucher PPIRV-000000006 is the reversal of the Prepayment Invoice when the final invoice was created
- Voucher ARPM-000922 is the payment of the Prepayment Invoice
- Voucher ARP-800000018 is the Settlement from Voucher ARPM-000922
- Voucher INV-10000734 is the Final Invoice. Notice that the balance is for the balance, after the application of the Prepayment
Get in touch with Stoneridge to Learn More About Optimizing Processes in Dynamics 365 Finance and Operations
Contact our team of experts today! They can help you set up and use processes like this, and more, to help you optimize processes across your Finance and Operations environment.
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