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Prepayment Invoice Template

A prepayment invoice asks the customer to pay for an order before you dispatch the goods or start the service. It is a real, numbered invoice, not a quote: the customer pays it, you release the order once the money clears, and the invoice stays in your records as the sale. It is typical for first orders from new trade customers, export orders on cash-in-advance terms, made-to-order stock and annual plans paid upfront. A prepayment invoice and an advance payment invoice are the same kind of document, and accounting systems use both names: an ERP may call any upfront percentage on a sales order a 'prepayment' and deduct it on the final invoice. Our advance payment invoice template covers that part-payment pattern for longer jobs. This page focuses on the pay-before-dispatch order, most often for the full price, where there may be no second invoice at all. The download is an editable HTML invoice with fields for the order reference, amount required upfront, release condition, pay-by date, any balance to follow and what happens if an item cannot be supplied. Fill it in your browser, then print it or save it as PDF.

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Download the HTML file to edit its fields, then print or save as PDF. Totals are entered manually.

What This Template Includes

  • Document title: Prepayment invoice
  • Sales order or quote reference
  • Prepayment required: full price or percentage
  • Release condition (for example 'ships when payment clears')
  • Pay-by date and how long stock or price is held
  • Balance to follow on a final invoice, or 'paid in full: none'
  • If an item cannot be supplied: refund or credit

How to Create Your Prepayment Invoice

  1. 01

    Describe your work

    Type a plain English description of the services you provided, the client, and the amount.

  2. 02

    AI generates your invoice

    InvoiceQuickly's AI drafts the client, line items, dates, and totals for you to review before saving.

  3. 03

    Review, download, and send

    Check every detail, download the PDF, or use Pro to email the PDF directly to your client.

Recommended Payment Terms

Make the invoice due before the event it controls: 'payment due before dispatch' or 'due within 5 days; order held until paid'. Say how long you will hold the stock or the price if the invoice is not paid, and what happens then (the order is cancelled and the invoice voided or credited). Ask for a method that clears quickly and cannot easily be reversed for large first orders, such as a bank transfer, and dispatch only when the money is in your account, not when the customer sends a payment confirmation. If you prepay only part of the order, state when the balance will be invoiced and on what terms.

Need help writing payment terms? Read our guide to invoice payment terms for best practices and templates.

Tax Information

Because a prepayment invoice is a real invoice issued before supply, it usually fixes when tax is due. In the UK, HMRC's guidance on instalments and deposits says the tax point for an advance payment is the date you issue the VAT invoice or the date you receive the payment, whichever is first, so a VAT invoice sent on 3 November puts the VAT in the period containing 3 November even if the goods ship later. If you would rather account for VAT when the money arrives, send a pro forma clearly marked 'this is not a VAT invoice' (VAT Notice 700, paragraph 17.3) and issue the VAT invoice once paid; a pro forma cannot be used by the customer to reclaim VAT. In the EU, the VAT Directive makes VAT chargeable on receipt of a payment on account. US sales tax timing is set by each state. A template is only a layout: add your registration number and any other details your tax authority requires. InvoiceQuickly applies one tax rate per invoice and copies saved business and client tax IDs to new invoice PDFs on its PDF. This is general information, not tax advice. Last reviewed October 2026.

Industry context (2026)

Prepayment shifts credit risk from seller to buyer, which is why it is common for new and overseas customers. The US International Trade Administration's guide to methods of payment says that with cash in advance an exporter avoids credit risk because payment is received before ownership of the goods transfers, that wire transfers and credit cards are the most common cash-in-advance options, and that it is the least attractive option for the buyer, so exporters who insist on it may lose business to competitors with easier terms. Accounting software uses the term in a slightly different way: Microsoft's Business Central documentation, for example, describes a prepayment invoice raised from a sales order using a prepayment percentage, with the prepaid amount deducted automatically when the rest of the order is invoiced. For VAT, HMRC sets the tax point for advance payments at the earlier of the invoice or the payment, which is why the choice between a prepayment invoice and a pro forma matters.

Worked example

Worked example (illustrative, UK, VAT at 20%): a candle wholesaler takes a first order, SO-1043, from a new gift shop and asks for full prepayment. On 3 November 2026 it issues prepayment invoice INV-0412: 120 pillar candles at £12.50 = £1,500.00; 40 reed diffusers at £18.75 = £750.00; subtotal £2,250.00; VAT 20% £450.00; total £2,700.00, 'payment due before dispatch; stock held until 10 November'. The shop pays by bank transfer on 5 November; the money clears the same day and the order ships on 6 November with delivery note DN-0219. Because a VAT invoice was issued before payment and dispatch, the tax point is 3 November and the £450.00 goes on the VAT return covering that date. No second invoice is needed. While packing, the wholesaler finds only 30 diffusers in stock. It ships 30, and on 6 November issues credit note CN-0413 against INV-0412 for 10 diffusers: £187.50 plus VAT £37.50 = £225.00, which the shop chooses to hold as credit on its next order. Had the wholesaler sent a proforma marked 'this is not a VAT invoice' on 3 November instead, the tax point would have been the 5 November payment, and it would then have issued the VAT invoice for the 30 diffusers actually supplied.

Common mistakes to avoid

Sending a proforma and an invoice for the same order

Two invoice-like documents for one order leave the customer unsure which to pay and which to keep for VAT. Choose one route: proforma then invoice, or invoice upfront.

Dispatching on a payment confirmation

A remittance email is not money in the bank. For prepaid orders, release goods only when the funds have cleared.

Editing a paid prepayment invoice when stock runs short

Changing the quantities after payment breaks the record. Issue a credit note for what you could not supply.

Issuing a second full invoice on dispatch

If the prepayment invoice covered the whole order, a 'final' invoice for the same goods doubles the sale in both sets of books. Send a delivery note instead.

No hold period

Without a pay-by date, stock sits reserved indefinitely for an unpaid order. State how long you hold the goods or price.

Invoicing Tips

  • 1Quote the sales order or quote number on the prepayment invoice, so the customer's accounts team can approve it against what they ordered.
  • 2Write the release condition in plain words: 'Order ships within 2 working days of cleared payment.'
  • 3Check the money has actually arrived before you dispatch. A remittance email or a screenshot is not cleared funds.
  • 4If you prepay the full price with a VAT invoice, you do not need a second invoice on dispatch. Send a delivery note with the goods and mark the invoice paid.
  • 5If an item turns out to be out of stock after the customer has paid, issue a credit note against the prepayment invoice for that item and refund it or hold it as credit, as the customer prefers.
  • 6Decide whether you need a proforma or an invoice before you send anything. Sending both for the same order, each looking like an invoice, confuses customers and their VAT records.

Related Resources

Frequently Asked Questions

What is a prepayment invoice?

A prepayment invoice is an invoice issued before you deliver goods or services, asking the customer to pay first. Once paid, you release the order. It has its own invoice number and counts as an invoice for your records and, in most VAT systems, for tax timing.

Is a prepayment invoice the same as an advance payment invoice?

Essentially yes; they are two names for an invoice issued before supply. In practice 'prepayment' is often used for paying the whole order before dispatch, and 'advance payment' for paying part of a contract price with a final invoice for the rest. Use the name your customer or accounting software uses, and make the amount and what it covers clear.

What is the difference between a prepayment invoice and a proforma invoice?

A proforma is a preview of the invoice, sent so the customer can arrange payment or import paperwork; it is not a tax invoice and, in the UK, should be marked 'this is not a VAT invoice'. A prepayment invoice is the real invoice. Send a proforma first if you want the tax point to be the payment date rather than the invoice date.

Do I need a final invoice after a prepayment?

Not if the prepayment invoice covered the whole order and was a proper invoice. If it covered only part, issue a final invoice for the balance that quotes the prepayment invoice number and amount. If you sent a proforma, issue the invoice once the payment arrives.

When should I ask for prepayment?

When you would otherwise carry the credit risk: first orders from new customers, export orders, made-to-order or customised goods, and orders large enough that non-payment would hurt. The US International Trade Administration notes that cash in advance removes the exporter's credit risk but is the least attractive option for buyers, so it can cost you orders.

What if I cannot supply everything that was prepaid?

Issue a credit note against the prepayment invoice for the items you cannot supply, quoting its number, and refund the amount or hold it as credit for a later order, as agreed with the customer. Do not edit the paid invoice.

Can I create a prepayment invoice in InvoiceQuickly?

There is no separate prepayment document type, but an ordinary invoice works: date it before dispatch, set the due date and write the release condition in the terms. Record the payment when it arrives, on any plan. On Pro you can email the invoice and add a payment link for the balance through your own Stripe or PayPal account, and issue a credit note if something cannot be supplied. Line amounts cannot be negative, so a final invoice after a part prepayment should bill only the balance and quote the prepayment invoice in its notes.