Received an Advance Invoice: How to Book It Step by Step

When someone issues an advance invoice, they rarely think about what happens on the receiving end. Yet the recipient of a prepayment faces the same accounting questions: Is this payment an expense? An asset? How does input VAT work? This article explains how Swiss SMEs should correctly record an advance invoice they receive—from the initial payment through to the final invoice.

What Is a Received Advance Invoice in Accounting Terms?

An advance invoice you receive as a client is initially not a final service settlement, but a prepayment for services not yet fully delivered. This has accounting consequences:

• The payment is not an immediate expense, but an asset position (prepayments to suppliers).
• Only when the service is delivered and the final invoice arrives does the amount get reclassified to the appropriate expense account.
• VAT treatment depends on whether the other party shows VAT and whether you are entitled to claim input VAT.

If you use the Swiss GAAP FER chart of accounts or a standard SME chart of accounts (such as the Käfer SME framework), you typically record the prepayment on account 1500 "Prepayments to suppliers" or similar.

Step by Step: How to Record as the Recipient

Step 1: Receive and Review the Advance Invoice

Before you book anything, check the invoice for formal correctness. To claim input VAT, you need a compliant invoice showing the supplier's VAT number, the VAT amount, and a description of the services. Without these details, you cannot claim input VAT. For a complete checklist of mandatory invoice fields in Switzerland, see our guide on Swiss invoice template—all required fields in one place.

Step 2: Record the Payment

When you pay the advance invoice, you record:

Debit	Credit	Amount
1500 Prepayments to Suppliers (net)	—	CHF X
1170 Input VAT	—	CHF Y
—	1020 Bank	CHF X + Y

Example: You receive an advance invoice for CHF 5,000 plus 8.1% VAT (= CHF 405). You pay a total of CHF 5,405.

• Debit 1500: CHF 5,000
• Debit 1170: CHF 405
• Credit 1020: CHF 5,405

Step 3: Service Delivered — Final Invoice Arrives

Once the service is fully delivered and you receive the final invoice, you settle the prepayment:

Debit	Credit
Expense Account (e.g. 4000 Material Expense)	1500 Prepayments to Suppliers
1170 Input VAT (remaining amount)	1020 Bank (remaining payment)

The prepayment position is cleared and the total expense lands in the correct expense account.

Step 4: Year-End with Outstanding Prepayment

If no final invoice has arrived by the balance sheet date, the amount remains on account 1500. It appears on the balance sheet as a current asset—representing a claim against the supplier for services still to be delivered. This is correct and proper.

VAT for the Recipient: Three Common Mistakes

Mistake 1: Claiming input VAT immediately even though no compliant VAT invoice exists.
Without a disclosed VAT number and correct details, input VAT cannot be deducted. Request a compliant invoice.

Mistake 2: Recording the advance payment directly as an expense.
A prepayment is not yet an expense. If the service is not or only partially delivered, you would have to reverse the entry—unnecessary work.

Mistake 3: Double input VAT claim on the final invoice.
If the final invoice shows the full amount including advance payments already made, you may claim input VAT only on the remaining balance, not again on the advance portion.

Special Case: Advance Invoice Without VAT

Self-employed persons and micro-businesses below the VAT threshold (CHF 100,000 annual turnover) issue invoices without VAT. In this case, you record the full invoice amount as a prepayment—with no input VAT line. This is simpler to book, but you must verify that no VAT appears on the invoice. If VAT is shown by a non-registered supplier, that is a formal error.

When Multiple Sub-Accounts Make Sense

For large projects with several advance payments, consider using a separate sub-account per supplier or project (e.g. 1500.1, 1500.2). This improves clarity and prevents mixing prepayments to different suppliers. Your accountant can set up suitable sub-accounts in your chart of accounts.

Receiving an Advance Invoice and Paying by QR-Bill

Many Swiss suppliers now issue advance invoices with a QR code. When you initiate payment via e-banking, the system reads the payment details directly from the QR code—IBAN, amount and reference number. This simplifies reconciliation for the supplier since the reference uniquely identifies the outstanding item. For the technical details of how a QR-bill works, see Create a Swiss QR-bill—step-by-step guide.

If you yourself want to issue advance invoices with a QR code, you can create them directly with the SnapBill app—including QR-IBAN and correct VAT disclosure.

At a Glance

• A received advance invoice is not an immediate expense, but a prepayment (asset account 1500).
• Input VAT is claimed only once a compliant VAT invoice is on hand.
• When the final invoice arrives, the prepayment account is cleared and the expense correctly recorded.
• Open prepayments at the balance sheet date remain as current assets on the balance sheet.
• Double input VAT claims on the final invoice are a classic error—only claim on the remaining balance.
• For multiple advance tranches: use separate sub-accounts per project or supplier.

If you consistently apply these principles, you avoid correction entries and have a clean basis for year-end closing—with no nasty surprises for your accountant.