Vendor Prepayment Overview
In procure to pay process, making payments to vendors happens after recording the purchase bill. But payments can be recorded even before the purchase bill is entered through the Vendor Prepayments feature. This feature records deposit amounts paid to vendors. We can apply these prepayment amounts against any open bills for the same vendor. This feature enables us to record and track multiple prepayments and prepayment applications for the vendors.
After we make a prepayment to a vendor, we should apply the prepayment against the vendor bills. We can either apply the full amount to one bill or split the amount for several bills from the same vendor.
Consider the example below:
We need to request a good or service from our vendor for a total value of RS 10,000/-.
Our vendor requests an initial deposit of RS 6,000/- to cover the purchase of materials.
We entered a Vendor Prepayment of RS 6,000/-. This payment is credited from our bank or credit card account and debited to our prepayment account.
Our vendor sends two bills for this order that we enter on NetSuite:
Bill 1, value RS 7,000/-.
Bill 2, value RS 3,000/-.
We apply the prepaid amount to the vendor bills using a Vendor Prepayment Application. We decided to apply for the RS 6,000/- prepayment as follows:
RS 4,000/- applied to bill 1.
RS 2,000/- applied to bill 2.
This Vendor Prepayment Application decreases the total amount we must pay to our vendor.
Later, we complete the payment to our vendor as follows:
RS 3,000/- paid to bill A (RS 7,000/- total value, minus the RS 4,000/- vendor prepayment application.)
RS 1,000/- paid to bill B (RS 3,000/- total value, minus the RS 2,000/- vendor prepayment application.)
A vendor prepayment is a posting transaction that impacts the general ledger without offsetting the Accounts Payable account. When the vendor prepayment is applied, the Accounts Payable account is offset.
Note: Vendor Discounts are not considered in Vendor Prepayments.