How vendor prepayments are applied automatically

What it is

A vendor prepayment (or vendor advance) is money you have already paid to a supplier but have not yet used to buy goods. This can happen when you pay a supplier in advance, or when you overpay an invoice. Usystems automatically applies these prepayments to offset new cash purchases, reducing the amount you owe or must pay.

Why it matters

Without automatic prepayment application, you would need to manually track and allocate each prepayment to a purchase, which is tedious and error-prone. Automatic application keeps your vendor balance accurate and avoids duplicate payments. It also ensures that if a supplier has a credit with you, it is used fairly and consistently.

How it works in Usystems

1. Prepayment builds up: When you pay a vendor more than the amount owed (e.g., you pay 10,000 AFN but only owe 8,000 AFN), the extra 2,000 AFN is recorded as a prepayment or vendor advance.

2. New purchase is created: Later, when you create a new cash purchase from the same vendor, Usystems checks if the vendor has an outstanding prepayment balance.

3. Automatic offset: If a prepayment exists and is in the same currency as the new purchase, Usystems automatically reduces the purchase amount owed by the prepayment. For example:

   • New purchase: 5,000 AFN
   • Vendor prepayment: 2,000 AFN
   • Amount owed after prepayment: 3,000 AFN

4. Payment posting: The remaining balance (if any) is posted as a payable to the vendor, or if the prepayment was larger than the purchase, the excess remains as a prepayment for future use.

Where you see it

• On the cash purchase form: When you create a cash purchase from a vendor with a prepayment, the form may show a line item or note indicating that the prepayment was applied.
• In vendor statements: Your vendor's balance (available through Contacts → Vendors Open in Usystems) will reflect the prepayment application. A vendor with a zero balance means all prepayments were fully used.
• In the general ledger: The prepayment account (often a liability or offset account) will show transactions reflecting the application.

Key points

• Currency matching: Prepayments are only automatically applied if they are in the same currency as the new purchase. If currencies differ, your admin may need to manually handle the allocation with an exchange rate.
• Manual override: In some systems, you can prevent automatic application if you want to keep a prepayment separate or allocate it differently. Check with your admin if you need this control.
• Partial application: If the prepayment is smaller than the purchase amount, Usystems applies the full prepayment and posts the remaining balance as owed to the vendor.
• Full coverage: If the prepayment is larger than or equal to the purchase amount, the entire purchase is covered and no new payment is required.

Common scenarios