Why advances and prepayments require attention in projects and jobs

In long-term projects — construction sites, consulting engagements, software development, industrial supplies — it is common to agree partial payments before final delivery. An advance or prepayment improves liquidity and reduces insolvency risk, but it introduces precise obligations in invoicing, VAT and accounting.

In Switzerland, the distinction between an advance received, a confirmatory deposit and a prepayment on invoice is not merely terminological: it determines when tax becomes due, which balance sheet account to use and what documentation to retain. For an SME or a fiduciary firm, the most common mistake is treating an advance as immediate revenue or, conversely, forgetting to show VAT on the advance invoice.

This guide illustrates the complete operational flow — from the commercial proposal to the accounting closure of the job — with references to the Value Added Tax Act (VAT Act/MWSTG) and Swiss accounting standards (CO, Swiss GAAP FER).

Advance, deposit and prepayment: what changes

Before issuing the first partial invoice, it is advisable to clarify the legal and economic nature of the advance payment:

Type	Who pays	Initial accounting	VAT
Advance received (customer)	The customer pays part of the consideration in advance	Liability — advances from customers (2030)	Due upon issuance of the advance invoice or upon receipt (Art. 40 VAT Act), if linked to a future supply of services
Confirmatory deposit	Payment as guarantee of the order	Liability until contract performance	Excluded from VAT if of a purely compensatory nature (Art. 157 CO); taxable if it also constitutes an advance on the price
Advance paid (supplier)	The company pays the supplier in advance	Asset — advances to suppliers (1300)	Deductible if advance invoice with VAT shown
Final invoice	Payment of the remaining balance	Offset of advance + revenue	Only on the amount not yet invoiced

Invoicing advances: content and sequence

A valid advance invoice in Switzerland must meet the same formal requirements as any VAT invoice (Art. 26 VAT Act): identification of the parties, date, description of the future supply, VAT rate, net and gross amount. For projects and jobs, the safest practice is:

Advance invoice (1st instalment)

Clearly state the percentage or fixed amount of the advance relative to the total value of the job. Example: «Advance 30% on consulting project XYZ — total contract amount CHF 50'000». Specify that this is an advance payment, not the final balance.

Number invoices sequentially (e.g. F-2026-0142/1) and retain the reference to the contract or purchase order.

Interim invoices and final balance

Subsequent invoices must deduct advances already invoiced. The final invoice summarises: total amount, advances already paid (with reference to previous invoices), remaining amount due.

For jobs with milestones (project management, construction), each completed milestone can generate a partial invoice with a description of progress status.

VAT treatment of advances and prepayments

Under Art. 40 of the VAT Act, with accounting prepared according to agreed consideration (usual practice), tax liability arises upon issuance of the advance invoice or, in the absence of an invoice, upon receipt of the advance payment. VAT shown on the invoice must be reported in the VAT return for the corresponding invoicing period.

For the supplier (who receives the advance): the net amount is recorded as a liability (advances from customers), VAT as a debt to the FTA. Revenue is not recognised until the supply is performed or a matching accrual method consistent with the chart of accounts is applied.

For the customer (who pays the advance): VAT on the advance invoice is normally deductible, provided the supply is genuinely planned and the invoice is compliant. The advance paid to the supplier remains an asset until acceptance of the goods or services.

Caution: cancellation or refund

If a project is cancelled after the advance has been received, issue a credit note to reverse the VAT and invoiced amount. The refund to the customer is recorded by closing the «advances from customers» liability. Retain contractual documentation justifying any penalties or withholdings.

Accounting: advances received from customers

Typical scheme for a CHF 100'000 job + 8.1% VAT, with a 40% advance upon contract signing:

Transaction	Debit	Credit	Amount
Advance invoice and receipt 40%	1020 Bank	2030 Advances from customers (40'000) / 2200 VAT payable (3'240)	CHF 43'240
At job closure (revenue)	2030 Advances from customers	3400 Revenue from services	CHF 40'000
Final invoice 60%	1100 Accounts receivable	3400 Revenue + 2200 VAT	CHF 64'860

Revenue is recognised when the supply is performed (or progressively, if the percentage-of-completion method provided for in the chart of accounts is applied). Advances remain a liability until that point: do not confuse them with deferred revenue in the income tax sense if the supply has not yet been performed.

Accounting: advances paid to suppliers

When your company pays an advance to a supplier for a job (machinery, materials, subcontracting), the amount is recorded as an asset:

Upon payment of the advance to the supplier: Debit 1300 Advances to suppliers / Credit 1020 Bank. If the supplier issues an invoice with VAT, record input VAT (1170) separately, provided the invoice is valid.

Upon delivery and final invoice: offset the advance (1300) against the amount owed to the supplier (2000) and recognise the expense (4000/3000) for the portion not yet accounted for. Verify that VAT is not deducted twice.

Job management: from contract to balance sheet

For complex projects, job costing (WBS or cost centre) prevents imbalances between cash collected and realised margin:

1.Contract: define advance percentages, milestones and refund conditions in case of withdrawal. Align clauses with planned invoicing.
2.Job register: track for each job contractual amount, invoiced advances, received advances, allocated costs and current margin.
3.Closure: at project end, clear the advances from customers balance by transferring the amount to revenue. Any unused advances (change order, scope reduction) require a credit note or contract amendment.
4.Accruals and deferrals: if the supply extends across multiple financial years, consider expense accruals on prepaid costs and revenue deferrals based on the matching principle (Swiss GAAP FER / Art. 957b CO).

Automate with Accountex

Accounting software such as Accountex simplifies advance management by linking invoicing, general ledger and job tracking. Set up advance invoice templates with standard text, predefined percentages and job reference; on final invoicing, the system automatically deducts advances already recorded.

Verify that the VAT module correctly reports advance invoices in the tax period and that job reports show the difference between «invoiced», «received» and «accrued revenue» — an essential indicator to avoid overstating net income when advances exceed actual work progress.

Common mistakes and how to avoid them

Improper early revenue recognition

Recording the advance directly as revenue before performance of the supply inflates profit and VAT appears correct only if invoiced — but the balance sheet does not reflect the liability to the customer. Solution: account 2030 until completion or proportional progress.

Double VAT taxation

Applying VAT to the full amount on the final invoice without deducting advances already taxed. Solution: final invoice on the remaining net amount only, with explicit reference to previous advances.

Unmonitored supplier advance

Forgetting to close account 1300 upon delivery leads to overstated current assets. Solution: supplier invoice ↔ advance paid matching procedure for each job.

Insufficient documentation

Generic advance invoices («deposit» without description of the supply) complicate tax audits and the customer's VAT deduction. Solution: precise description, contract reference, percentage of total.

Operational checklist

✓Contract with advance percentages, milestones and withdrawal conditions
✓Advance invoice compliant with Art. 26 VAT Act with VAT shown
✓Recording as liability (2030) or asset (1300), not as revenue/expense
✓VAT declared in the invoicing period of the advance
✓Final invoice with deduction of advances and cross-references
✓Job closure: transfer advances → revenue at end of supply
✓Credit note in case of cancellation or advance refund