Final invoice after advance invoice: How to issue it correctly, step by step

When you issue a pro forma invoice for a large order, and then the moment of fulfillment arrives, the question arises: how do you prepare the final invoice correctly?

Many entrepreneurs feel uncertain about the relationship between advance invoices and final invoices, especially when they have to deal with negative signs and the correct display of amounts. However, once you have issued the advance invoice, preparing the final invoice can be easy if you know the exact steps to take.

In this article, we will show you step by step how to issue a final invoice after an advance payment without any errors. You will learn about the rules of advance invoicing, the tricks of advance invoice accounting, and how to avoid the most common pitfalls. Let's get started!

What are advance invoices and final invoices?

First, let's clarify the terms. Since May 2004, advance invoices are no longer a separate type of invoice, but rather a completely traditional invoice that includes an advance payment. So you issue a normal invoice with the advance payment amount listed in the item line.

In contrast, a pro forma invoice is a request for payment that is not subject to invoicing rules. While the advance payment request (proforma invoice) only serves to request the amount from the customer in the case of transfer orders, the advance invoice is a real invoice. Important difference: if your customer pays on the basis of a fee request, you still have to issue an invoice, but in the case of an advance invoice, the invoicing has already taken place.

You issue an advance invoice when the buyer pays part or all of the purchase price before delivery. The amount received will be the gross value of the invoice, regardless of whether it was received in cash or by bank transfer. Accepting the advance payment creates a VAT payment obligation.

The final invoice is prepared upon completion and includes the total value of the transaction. The advance invoice amount is shown with a negative sign, so the final invoice amount only shows the amount still to be paid.

Issuing a final invoice step by step

Once you have completed the work and delivered the product or service, you need to prepare the final invoice. The final invoice is completely independent of the advance invoice issued earlier, as it must be prepared with regard to the completion of the transaction. Tax-relevant data, such as the date of completion, will be different.

The process consists of the following steps:

1. Recording the date of performance: In the case of services, the date indicated on the certificate of performance shall be the date of performance for the final invoice; in the case of product sales, the date of delivery of the product shall be the date of performance. Issue the invoice within 8 days of this date.

2. Indication of total transaction value: You must include the total value of the transaction on the final invoice, without deducting the advance payment. This will be the tax base.

3. Deducting advance payments with a negative sign: You must deduct the advance payment received in a separate line with a negative amount. The difference between the two items is the amount still to be paid.

4. NAV data reporting: If the VAT on the total transaction value reaches or exceeds HUF 100,000, you must comply with the data reporting requirement. It is important to note that in the case of a final invoice, you do not need to refer to the advance invoice as a precedent.

If the buyer has paid a 100% advance payment, it is sufficient to issue an invoice, provided that it includes the date of the advance payment and the future date of performance of the transaction.

Advance invoice rules and common mistakes

The issuance of advance invoices is subject to strict rules. In the case of cash or credit card payments, you must issue the invoice at the same time as the payment. In the case of bank transfers, you must issue the document within 15 days of the credit entry. It is important to note that you cannot issue an advance invoice before receiving the advance payment.

The date of performance of the advance invoice can only be the date of receipt or crediting of the advance payment. The VAT payment obligation arises on this date. You must include the details of the product or service for which the advance payment is to be credited on the advance invoice. Simply stating "advance payment" is incorrect invoicing.

The most common mistake is issuing a final invoice with a negative total amount. If the amount of the advance payment is greater than the transaction value, you cannot issue a negative final invoice. In this case, you issue a zero final invoice and then adjust the advance invoice by the difference. A negative final invoice does not exist logically, as the value of a transaction cannot be negative.

In the case of advance payments related to reverse charge transactions, the advance payment invoice may not include VAT, but you must not indicate "reverse charge" in the wording, but rather that "it does not fall under the scope of the VAT Act."

Conclusion

So you can see that issuing a final invoice after an advance invoice is a simple process if you know the exact steps. In fact, the most important rule is to include the total transaction value on the final invoice and then deduct the advance payment with a negative sign on a separate line. Avoid common mistakes, especially issuing a negative final invoice. Follow these guidelines consistently and your invoicing will be error-free every time.