Advance invoice before work begins: Correct booking and VAT treatment
Issued an advance invoice before work started? Learn how to book it correctly, handle VAT, and avoid common year-end mistakes.
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An advance invoice issued before work begins is an accounting edge case—and one that is regularly booked incorrectly in practice. The money is in your account, but you haven't delivered anything yet. What exactly do you owe the client at this moment? And how does the tax authority view it? This article clarifies the concrete process for Swiss SMEs and freelancers.
Why advance payments are an accounting minefield
When you issue an advance invoice and the client pays before you've worked a single hour, you haven't actually earned any revenue. The payment received is therefore not income in the accounting sense, but a liability: you still owe the client something.
In double-entry bookkeeping (mandatory if turnover exceeds CHF 500,000 or voluntary for smaller businesses), you initially post the receipt to a liability account, typically:
- 2030 Deposits received (or similar, depending on your chart of accounts)
The offsetting account is your bank account. Only when you actually deliver the service do you reverse the liability and record the amount as revenue.
Cash accounting: simpler, but watch out
If you're a small business or freelancer using simplified cash accounting, you typically post the payment directly as income. That's permitted—but it creates a problem at year-end: if the payment arrives in the old year and the work is done in the new year, your old year's profit won't be correct. Accountants recommend an accrual adjustment or at least a note on your tax return in such cases.
VAT: When does the tax liability arise?
VAT is based on the timing of performance, not the payment date—at least in principle. The Swiss Federal Tax Administration distinguishes two methods:
| Method | Tax liability arises |
|---|---|
| Agreed consideration (accrual method) | When invoice is issued |
| Cash received (cash method) | When payment is received |
Most SMEs and freelancers use the cash method (received consideration), because it's more cash-flow friendly. Under this method, the VAT liability arises when you receive the advance invoice payment—before you've even started the work.
In practice, this means: if you receive a CHF 5,000 deposit in November (at 8.1%), you owe the Federal Tax Administration CHF 408 in VAT for Q4 (5,000 × 8.1 / 108.1), even though the work doesn't start until January. For a compact overview of current VAT rates and settlement rules, see our guide to Swiss VAT basics 2026 — rates, duties and special rules.
Accrual method: be careful with early invoicing
Under the accrual method, the invoice date matters. If you issue the advance invoice in December but the project doesn't start until February, you must declare the VAT for Q4. Miss it, and you'll face a demand plus penalty interest.
Step by step: correct booking in practice
Here's a complete example: you receive a deposit of CHF 10,800 including 8.1% VAT before work begins.
Step 1 — Payment received (before work starts):
- Debit: Bank CHF 10,800
- Credit: Deposits received (liability) CHF 9,991
- Credit: VAT payable CHF 809
Step 2 — Work completed, final invoice issued:
- Debit: Deposits received CHF 9,991
- Credit: Service revenue CHF 9,991
The VAT remains unchanged—it was correctly accrued in Step 1.
Step 3 — Settlement on the final invoice: On the final invoice, you show the total amount and deduct the advance payment. The client pays only the difference. This deduction must be clearly labeled on the invoice ("less advance payment from [date], Ref. [invoice number]").
Common mistakes and how to avoid them
Mistake 1: Booking the deposit directly as revenue Especially common in cash accounting. If the project is cancelled, you've recorded revenue you never earned. Correcting it is messy.
Mistake 2: Declaring VAT only when the final invoice is issued Under the cash method, that's wrong—the tax arises when you receive payment. Check which method you've agreed with the tax authorities.
Mistake 3: Advance invoice without an invoice number Every advance invoice needs its own consecutive invoice number. This is the only way to reference it correctly on the final invoice—and to provide a complete paper trail if the tax authority audits you. What must appear on an advance invoice is described in our guide to Swiss invoice template — all required fields in one place.
Mistake 4: No separate account for deposits If you park deposits on a general receivables or revenue account, you'll lose track. By year-end or audit time, it becomes a mess.
QR-bill and advance payments: what to watch for
Since the Swiss orange payment slip was phased out, the QR-bill has become the standard. Issue advance invoices with a QR-bill too—it makes posting easier for the recipient and reduces payment errors (wrong IBAN, missing reference number). If you want to create your first advance invoice with a QR code directly in your browser, you can do that with the SnapBill app without signing up or installing anything.
Make sure the reference number on the advance invoice matches the one on the final invoice later—either as the same project number or with a clear numbering system (e.g., 2026-047-A for the advance invoice, 2026-047-S for the final invoice).
When is an accountant check worth it?
If you have several large projects running with advance payments, or if the project start and payment receipt fall in different tax quarters, a quick check with your accountant is worthwhile. Incorrect accrual can mean either paying VAT too early (cash-flow problem) or too late (tax demand). Both can be avoided from the start with clean booking discipline.
At a glance
- Advance payments before work begins are liabilities, not revenue—book them correctly to "Deposits received."
- Under the cash method (cash received), VAT liability arises when you receive the deposit, not when you complete the work.
- Every advance invoice needs its own invoice number and must be clearly referenced on the final invoice.
- Use QR-bills for deposits too—it simplifies posting and referencing on both sides.
- For projects spanning year-end: don't forget the accrual adjustment or consult your accountant.
Frequently asked
How long can an advance invoice remain open before work begins?
The law doesn't set a maximum period. What matters is what's agreed in your contract or order confirmation. In practice, accountants recommend not leaving deposits open as a liability for longer than twelve months—after that, either the work should start or the amount should be refunded and the invoice cancelled.
Do I have to issue a receipt once the client has paid the advance invoice?
Switzerland has no legal requirement to issue a separate receipt if you already have an invoice with proof of payment. However, many clients—particularly larger companies and government agencies—still demand a written payment confirmation. It's good practice to send a brief confirmation by email and file it as documentation.
What happens in the books if the project is cancelled after the deposit is paid?
If the project is cancelled and you refund the amount, you reverse the liability on "Deposits received" and debit the bank account. You can reclaim the VAT already declared in your next settlement, provided you've issued a credit memo (cancellation invoice) to the client. Without a credit memo, VAT correction is not permitted.
Can I use the same VAT rate on the advance invoice as on the final invoice?
Yes, and you should. The advance invoice and final invoice must show the same VAT rate, since they cover the same service. If the tax rate changes between contract signing and work completion—for example, due to a federal rate adjustment—the rate that applies is generally the one in effect when the work is actually performed.
How should an advance payment be shown correctly on the final invoice?
The deposit is shown on the final invoice as a separate deduction line, with a reference to the original advance invoice (date and invoice number). The VAT portion of the deposit should also be shown separately so the recipient can correctly reconcile their input tax. The client then pays only the remaining balance.
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