A new feature with QuickBooks Enterprise added in June 2024: Customer Prepayments

Remember when QuickBooks rolled out the prepayment feature for Sales Orders last year? They must have gotten enough feedback to know that they also needed to include it within their Estimates section. You may know customer prepayments as customer deposits are for work that has been agreed upon but not yet performed. Previously, you would be required to manually enter the deposit on the sales order or estimate and then would have to back it out on the invoice to the customer or enter the deposit as a payment and it would show as a credit in the A/R account until you invoiced your customer. It was a very tedious process. Now available in QuickBooks Enterprise all editions can process prepayments without all the manual work.

Keep in mind that prepayments:

• Can only be used with sales orders and estimates
• Can be used with Progress and Non-Progress estimates but not inactive estimates
• Can’t be edited once they’re applied to invoices.
• Can’t be used with multi-currency turned on
• If you use Prepayments and then turn multi-currency on, Prepayments will be turned off.

First you will need to turn on prepayments

1. Go to Edit, and then Preferences.
2. Select Payments and then Company Preferences.
3. Go to Prepayments and then select Prepayment Settings.
4. Select Turn On Prepayments.
5. Go to Current Liability account and select your Current Liability Account or create a new one.
6. Once you are done, select OK and then select OK again in preferences.

To receive prepayments on a sales order or estimate

Click into Estimates:

1. Create a new estimate or open an existing one.
2. Select Receive Payments. (If you haven’t enabled your prepayment in preferences a popup will appear to allow you to go to preferences to set up.)
3. Select Prepayment on Estimate.
• You can also open Receive Payments from the home page or the Customer Center. You’ll need to select Prepayment on Estimate and then the estimate(s) to receive the prepayments.
4. Enter the amount and other details for the prepayment. Make sure the box is checked for “This is a prepayment on” and choose whether it’s for an estimate or sales order.
5. Once completed select Save and Close.
6. You’ll see the amount is entered for PREPAYMENT APPLIED.

To see the entry behind the scenes – Click Control Y

You’ll see that there is a debit to undeposited funds and a credit to customer deposits.

Now let’s print the estimate that shows the prepayment was received. But before we do that we need to make sure the estimate is formatted correctly:

1. Within the estimate select Formatting.
2. Select Customize Data Layout, and then Footer.
3. Select Prepayments and Balance Due.

Note: You can select Layout Designer to adjust the position of these fields in the print template.

4. Select OK.
5. Select Print.

Once you are ready to move over the estimate to an invoice follow these steps to apply a prepayment credit to an Invoice

1. Open the estimate and select Create Invoice.
2. Select Save this invoice then Yes to the popup asking you if you would like to apply credits to the invoice.

3. Note: you can also select Apply credits on an invoice to apply prepayment credits.

4. Select the prepayment credit and enter or edit the amount of credit to apply to this Invoice. A popup will appear to warn you that once you save the invoice you can’t unapply the prepayment. Then select Done.

Let’s go back to the customer payment screen:

You’ll see that QuickBooks created a General Journal. I’ll click on the row so we can view the transaction. You’ll see that there is a debit to customer deposits and a credit to Account for Prepayment Transfer.

QuickBooks creates two general journal entries for each prepayment credit when you apply it to an invoice.

To see these in QuickBooks, go to the Customer Center and find the Customer/Job you applied a Prepayment credit to an invoice.

You’ll see two general journal entries for each prepayment credit.

• The first general journal entry shows a debit to clear the customer deposit account and a credit to Account for Prepayment Transfer.

• The second general journal entry shows a debit to Account for Prepayment Transfer and a credit to Accounts Receivable.

Note: The Account for Prepayment Transfer in both general journal entries is an inactive account QuickBooks creates. QuickBooks uses it to transfer an amount from a liability account to an A/R account.

There are a few reports you can run to see open prepayments on estimates

There are two reports you can run, to see open prepayments and open prepayment balances. Here’s how you can run and customize them.

Open Prepayments by Customer report

This report shows you all open prepayments you’ve received that you haven’t applied to an invoice.

1. Go to Reports.
2. Select Customers & Receivables,
3. Select Open Prepayments by Customer.

You can customize this report to include prepayments that have been fully applied to invoices.

1. Select Customize Report, then Filters.
2. Select Prepayment Balance, then Either and then OK.

Open Sales Order by Customer report

1. Go to Reports and then Sales.
2. Select Open Sales Order by Customer Report.

We've added the Prepayment Open Balance to this report.

You can customize this report to show open estimates and sales orders.

1. Select Customize Report then Filters.
2. Select TransactionType, then Muliple Transaction Types.
3. Select Estimate and Sales Order then select OK.
4. Select OK again.

The report will update to show both open sales orders and estimates with their open prepayment balances.

Keep in mind you can edit a Prepayment if it hasn't been applied to an invoice.

Go into the customer prepayment screen from the estimate.

Then you can edit the payment and save.

If It’s been applied to an invoice, you’ll need to delete the prepayment (this will also delete the two linked general journal entries) and then create a new prepayment.

To refund a prepayment

Finally, prepayments, like any other customer payments, can be refunded.

If the payment hasn’t been deposited to your bank, you can delete the prepayment and the sales entries it’s applied to (sales order, estimate, and invoice).

If the prepayment has been deposited to your bank, you can either create a credit memo and apply it to another invoice, or write a check to the customer.

This feature is only available with QuickBooks Enterprise Editions.