Handling Advance Payment and Adjustment in Purchase Bills

Handling Advance Payment and Adjustment in Purchase Bills

Overview

This article explains how advance payments made against a Purchase Order (PO) are processed, recorded, and later adjusted during the creation of a Purchase Bill (PB). It also highlights current system behavior and the gaps identified in the Payment Voucher module.

Business Scenario

1. Purchase Order Creation:

   • A PO is raised for 3 items, each costing Rs. 100.
   • Total PO value = Rs. 300.

2. Vendor Rule (ABC Company):

   • Vendor requires 50% advance payment before delivery.
   • Delivery or acceptance of PO happens only after advance is paid.

3. Advance Payment Processing:

   • Rs. 150 (50% of PO value) is paid as advance.
   • An advance payment entry is created against the PO.
   • A Payment Voucher must also be created; otherwise, the company’s finance process does not allow the payment.

4. Status Before Delivery:

   • Vendor has not yet raised a Purchase Bill.
   • Delivery has not yet occurred.
   • Vendor is still claiming advance payment, which is valid under their mobilization policy.

5. Post-Delivery:

   • Once items are delivered, a Purchase Bill for Rs. 300 is raised.
   • The system should adjust (knock off) the Rs. 150 advance already paid.
   • Balance payable = Rs. 150.

6. Ledger Impact:

   • Ledger shows:
     • PO Value: Rs. 300
     • Advance Paid: Rs. 150
     • Balance Payable: Rs. 150
   • Adjustment (knock-off) is required during Purchase Bill processing.

Current System Behavior

• Advance payment and its Payment Voucher are created successfully.
• However, Payment Voucher does not have a field to indicate “Advance Payment Done”.
• While advance adjustment is possible during PB processing, the system does not explicitly show advance payment information inside Payment Voucher for reference.

Example (Simplified)

• PO Raised: 3 hammers, Rs. 300 total.
• Advance Payment: Rs. 150 paid to ABC company.
• Purchase Bill Raised After Delivery: Rs. 300.
• System Adjustment Needed:
  • Rs. 150 advance is knocked off.
  • Remaining payable: Rs. 150.

Key Notes

• Advance payments are always linked to a PO.
• Full advance (100%) cases also exist.
• Without creating a Payment Voucher, the company cannot process vendor payments.
• System enhancement needed: Payment Voucher should display advance payment details for traceability.

Related Terms

• PO (Purchase Order): Instruction issued to vendor for goods/services.
• PB (Purchase Bill): Invoice raised after delivery of goods/services.
• Advance Payment: Partial/full pre-payment made to vendor before delivery.
• Knock-off Adjustment: Deduction of already paid advance from final bill amount.
• Payment Voucher: Document recording vendor payments in ERP.