Prepayments Ledger

A prepayment lets you invoice a client for services, expenses, products, or other items before they have been delivered. This is most often needed on a time and materials project, where there is otherwise no way to bill a client up front. A client may ask to prepay $50,000 against future hours, or ask you to prebill a block of hours before the end of their fiscal year. Prepayments show up on invoices in two ways. First, you invoice the client for the prepayment itself, which puts a positive line on the invoice. Later, as work is delivered, Ruddr automatically adds a negative line to new invoices that draws down the prepaid funds, so the client is not billed twice for the same work. The Prepayments ledger is available on billable projects. To work with it you must have access to the project and the Edit Project permission for that project based on your Ruddr security role.

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The Prepayments Ledger

To open the ledger, go to the project and click the Settings tab, then select Prepayments under Accounting (Figure 1). Each row in the ledger shows the following:

• Bill Date - The date the prepayment will be picked up on the Ready to Bill screen for invoicing.
• Type - The kind of revenue the prepaid funds can be applied to. The options are Services, Expenses, Products, and Other Items.
• Invoice Item - The invoice item used for the prepayment line on the invoice.
• Description - The text that will show on the invoice line item.
• Amount - The pre-tax amount being prepaid.
• Available - The portion of the prepayment that has not yet been used to offset fees on another invoice.

Beneath the rows, the Total is the sum of every prepayment on the project across all types, and Available is the total amount that is still unused.

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Add a Prepayment

Click the + button at the top right of the ledger to open the Add Prepayment drawer (Figure 2). You can provide the following fields:

• Bill Date - The date the prepayment should appear on the Ready to Bill screen.
• Type - The revenue type the prepaid funds can be applied to. The type matters because it keeps prepaid funds where you intended them. A prepayment for services will never be used against billable expenses.
• Invoice Item - The invoice item to use on the invoice line. Your Workspace Admin can define as many invoice items as needed. Customers commonly create an invoice item such as “Prepaid Services” and map it, in the QuickBooks Online or Xero integration settings, to a product or service that posts to a liability account like Unearned Revenue. The prepayment then lands on the balance sheet rather than the income statement.
• Description - The text that will show on the invoice line item.
• Amount - The pre-tax amount you are charging the client.

If you want the invoice line to look like a normal block of hours, click the Include a quantity and rate for this prepayment checkbox. This presents two more fields:

• Quantity - The number of units being prepaid, such as 100 hours.
• Rate - The pre-tax fee per unit.

When this checkbox is checked, the Amount field is disabled and calculated for you. Clicking Save & Close adds the prepayment to the ledger. Every prepayment of the same type on a project uses the same invoice item. Once you have created a Services prepayment with an invoice item of “Prepaid Services”, the Invoice Item field will be locked to “Prepaid Services” on every later Services prepayment for that project. Choosing a type that has no prepayments yet leaves the field enabled so you can pick an invoice item for it. If you want an invoice to show several prepaid lines, such as one per role and rate, create a separate prepayment for each. Every prepayment appears as its own line on the invoice.

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View a Prepayment That Has Been Invoiced

Once a prepayment is on an invoice, including a draft invoice, its fields can no longer be edited and it can’t be deleted. An invoice icon appears at the right of the row, and the edit pencil is replaced by an eye. Clicking the eye opens the View Prepayment drawer (Figure 3). The fields are read only, and an Applied to Invoices section at the bottom lists every invoice that has drawn down the prepayment, with the invoice number, issue date, and amount used. Both draft and published invoices are listed, and you can click an invoice number to open it.

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Invoicing a Prepayment

On the bill date, the prepayment appears on the Ready to Bill screen. Total Prepayments is shown in the summary bar alongside services, expenses, products, and other items (Figure 4). Prepayments also have their own column in the Ready to Bill list (Figure 5). The column is a single total per project, so a $5,000 services prepayment and a $5,000 expenses prepayment on the same project show as $10,000 here, even though they will be separate lines on the invoice. Creating a draft invoice from Ready to Bill adds one line per prepayment (Figure 6). The line uses the invoice item from the ledger, though you can change it on the invoice like any other line. The icon in the link column at the right marks the line as a prepayment. Nothing on the invoice your client receives identifies the line as a prepayment. It reads as a normal line item unless you say otherwise in the description or the invoice item name. If you delete a prepayment line from a draft invoice, that prepayment returns to the Ready to Bill screen, the same as any other billable item. The Line Settings drawer on a draft invoice has a Prepayments tab (Figure 7) with a single option, Include the project name on each prepayment invoice line.

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Offsetting Invoice Fees with a Prepayment

Once the invoice carrying a prepayment has been published, the prepaid funds become available to offset fees on future invoices. A prepayment on a draft invoice can’t be used this way yet. From then on, whenever an invoice is created for the project, Ruddr looks for available prepaid funds of the same type as the revenue on that invoice and adds a line at the bottom to offset those fees. The description reads “Services offset by prepayment”, or the equivalent for expenses, products, or other items, and the amount is negative (Figure 8). In Figure 8, the invoice includes $4,000 of time and materials services and a $1,000 additional service, both of which count as services revenue, plus an expense, a product, and an other item. Prepaid services funds were available, so Ruddr offset the full $5,000 of services, leaving the $3,000 of other charges for the client to pay. The offset is the smaller of two numbers: the fees of that type on the invoice, and the prepaid funds still available for that type. If the invoice above had carried $15,000 of services but only $10,000 of prepaid funds remained, the offset line would be -$10,000 and the client would owe the rest. A few more rules govern how this works:

• An invoice can have at most one offset line per prepayment type per project, so a maximum of four for a single project.
• Ruddr always draws down the oldest prepayment first. A newer prepayment is not touched until every older one of that type is fully used.
• Several prepayments can fund a single offset line. The Applied to Invoices list on each prepayment shows how the amount was split.
• The offset line defaults to the same invoice item as the prepayments of that type, and you can change it if you want.

Funds committed to a draft invoice are no longer available for a new one. If you have a $5,000 prepayment and create a draft invoice that consumes it, the full $5,000 is used even though the invoice hasn’t been published. This is the same behavior as fixed fee billing milestones. You can edit the amount on an offset line, within limits. Raising it above the prepaid funds available for that type produces an error when you save. Lowering it releases the difference back to the prepayments so it can be used on a later invoice. Deleting an invoice releases everything it was holding. The prepaid amounts return to their prepayments and become available again.

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Workspace Defaults for Prepayment Lines

Under Settings, on the Invoices screen, prepayments appear in the list of line types that can carry the project name (Figure 9). The setting controls whether new invoices include the project name on prepayment lines, and you can still override it per invoice from the Line Settings drawer.

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Prepayments and Revenue

A prepayment is not revenue. Invoicing one does not change invoiced revenue on your reports and dashboards, and it is not picked up by revenue recognition. The revenue is recognized when the work is actually delivered, and the prepaid funds simply reduce what the client owes on that later invoice. To keep track of what a client has left to draw down, a Prepaid Balance Remaining column is available on the project list export, the Projects report, and the Performance by Project report. It matches the Available total at the bottom of the ledger.