Advance Invoice When Project Is Cancelled: Settlement in Switzerland
What happens to an advance payment when a project is cancelled mid-way? How Swiss SMEs and freelancers settle correctly and handle VAT.
- #advance invoice
- #project cancellation
- #settlement
- #swiss sme
- #freelancer
The project is running, the advance invoice is paid — and then the client cancels. Mid-project, with no deliverable finished. What now? This situation is uncomfortable, but more common than you'd think. And it raises immediate practical questions: How much can you keep? What must you repay? What does the correct final settlement look like — and what happens to the VAT?
What does "project cancellation" mean legally?
A project cancellation by the client under Swiss contract law (Code of Obligations, CO) is not a straightforward withdrawal. For work contracts (Art. 377 CO), the client may withdraw at any time — but must fully compensate the contractor for work performed and any expenses incurred. For agency relationships (Art. 404 CO), similar rules apply.
This means: if you're a freelancer or SME who has performed work, you may invoice for it. The advance payment already received is not a gift from the client — it's a prepayment for a total service not yet delivered. Once it's clear the total service will no longer be performed, the billing must be adjusted accordingly.
Step by step: How to settle after a cancellation
1. Document hours actually worked and expenses
Before you put any figures on paper, you need a clean overview of services rendered:
- All hours worked, with dates and task descriptions
- Third-party costs already paid (e.g. licence fees, materials, travel)
- Internal expenses directly attributable to the project
The better your documentation, the less room a client has to dispute the invoice.
2. Calculate the amount for services rendered
Compare the total contract value with what can actually be billed. Example:
| Item | Amount (CHF) |
|---|---|
| Agreed contract value (net) | 12,000.00 |
| Advance payment received (incl. VAT 8.1%) | 5,400.00 |
| Services actually rendered (net) | 3,800.00 |
| VAT 8.1% on services rendered | 307.80 |
| Total to invoice | 4,107.80 |
| Refund to client | 1,292.20 |
In this example, you received CHF 5,400.00 but may only retain CHF 4,107.80. The difference of CHF 1,292.20 goes back to the client.
3. Issue a final invoice with settlement
Issue a final invoice that clearly shows:
- The value of partial services rendered (with VAT shown separately)
- The advance payment already received as a deduction
- The remaining balance — either in favour of the client (refund) or in your favour (amount due)
This step is crucial: without a final invoice, you have an open liability on the books. The advance invoice alone does not close the transaction.
If you're unsure which mandatory fields belong on this final invoice, our guide to Swiss invoice template — all required fields in one place will help.
4. Handle VAT correctly
VAT treatment is the most common stumbling block. With the advance invoice, you typically already declared VAT and paid it to the Federal Tax Administration (FTA) using the actual method. If you now invoice less than you received, you must correct the VAT.
Specifically: the refund amount to the client includes a proportional share of VAT, which you must book as a correction (credit) in your next VAT return. It's best to issue a separate credit note that partially reverses the original advance invoice. For a thorough introduction to how VAT on advance invoices is correctly booked and settled, see our pillar article on Swiss VAT basics 2026 — rates, duties and special rules.
5. Document and confirm the refund
Refund the difference amount before the client sends a reminder. Keep the payment on record in writing: bank transfer with a reference note, confirmation by email. This way you have the process cleanly documented.
What if the client demands a larger refund than you owe?
Sometimes clients try to recover the entire advance payment on cancellation — even if you've already done substantial work. In this case:
- Provide your services overview immediately (time logs, emails, deliverables)
- Point to Art. 377 CO: the client's withdrawal does not release them from the compensation obligation
- Refund only what you genuinely did not earn
If the client still refuses to pay or insists on a full refund, follow the normal dunning process. Our article on the Swiss dunning process — from reminder email to debt collection shows you how to proceed in a structured way.
Common mistakes when cancelling a project
Not issuing a final invoice: If you simply leave the advance invoice standing and do nothing more, you have an open item on the books and could end up stuck with the difference.
Forgetting to correct VAT: The VAT on the unperformed portion was incorrectly paid to the FTA. Without correction, you pay too much.
Cannot reconstruct proof of work later: Without complete time tracking, it becomes difficult to demonstrate to the client — or even a court — how much work you actually performed.
Refunding without a record: Don't transfer money without comment. Document that this is a partial refund of the advance payment.
At a glance
- On project cancellation by the client, you have a right to compensation for work performed (Art. 377 CO)
- Compare services rendered to advance payment received — the difference must be refunded or claimed
- Always issue a final invoice with settlement, even if the balance favours the client
- Correct the VAT on the unperformed portion in your next VAT return
- Document everything in writing: proof of work, final invoice, refund transfer
With a clear final invoice, you can close the project properly on the books — and won't have to rely on guesswork if the client raises questions.
Frequently asked
How long does a client have to request a refund after project cancellation?
The statute of limitations for contractual claims in Switzerland is generally ten years (CO Art. 127). For purchase contracts and certain services, shorter periods of two years apply. It's advisable to prepare the final settlement immediately after cancellation to avoid any confusion about when services were performed.
Should I issue a credit note instead of a final invoice when refunding?
It depends on whether the refund exceeds any remaining balance owed. If you're refunding more than you still owe — because you worked less than the advance covered — you can issue either a final invoice with a negative balance or a formal credit note. What matters is that VAT is shown correctly in both cases.
What happens to the client's input VAT deduction if the advance invoice is partially reversed?
If the client claimed input VAT from the advance invoice, they must correct this once they receive your credit note or revised final invoice. The correction occurs in the client's VAT return for that tax period. As the invoice issuer, you're not responsible for the client's accounting, but you should issue a formally correct credit note.
Can I charge for lost profit when a project is cancelled?
In principle, yes: Art. 377 CO gives the contractor the right to full compensation, which can include lost profit on the unperformed portion. In practice, however, this claim is hard to enforce because it must be precisely calculated and documented. Often it makes more sense to quickly find a new client and minimize the loss that way.
How do I book the refund in financial accounting when a project is cancelled?
The advance payment received was booked as a liability (received deposits). When the final invoice is issued, this amount is reversed: the portion corresponding to services rendered is booked as revenue; the refunded portion closes the liability. The VAT on the refunded portion is shown as a correction in your VAT return.
Try it now
Invoice in 10 seconds
Upload a photo or PDF — the AI creates a compliant Swiss QR-bill.
Open Snapbill
