The advance invoice: a special case of billing
Presidential Decree 633/1972, better known as the V.A.T. Decree, specifies in Article 21 that an invoice must be issued " at the time the transaction is carried out." So you have to issue the invoice at the time of payment for the good or the end of the provision of a service.
If we adhered to the regulations, there would be no room for the advance invoice among all types of invoices, since it turns out to be an accounting document issued before the actual payment.
However, this is not quite the case, as there are specific cases in which an advance invoice can be issued.
We will detail them in this article.
Advance invoice: definition
An advance invoice is an accounting document prepared by the company before the payment transaction is made. It turns out, however, to all intents and purposes a real invoice that meets all the legal requirements imposed for the issuance of a traditional invoice. It is a tax document that certifies, for all intents and purposes, the transfer of a good or service from the issuer and seller to the recipient and purchaser.
The advance invoice can be considered a kind of financing that consists of an advance of part of the amount of an invoice. If we have an invoice issued but not yet collected, we can go to the bank to collect part of the amount if the invoice is advanced.
The advance invoice also requires the agreement of the bank, which makes it possible to collect the total amount of the invoice simply by presenting the advance invoice. The bank advances the amount, being assured that the invoice will be collected in the near future.
The parties involved in this exchange are the bank, the company that issued the invoice, and the customer to whom the invoice is addressed.
This type of invoice is often employed by companies that are unable to guarantee payment of the invoices for which they are creditors, and with the immediate invoice they can collect some cash immediately, so as to cover the amount of the receivable they have.
How to identify the time of carrying out the transaction
In order to identify the time at which the transaction is to be carried out, the rules contained in Article 6 should be taken as a point of reference. The latter provides different rules for each type of transaction. Two types of transactions are mainly distinguished: the supply of goods (movable and immovable property) and the provision of services.
As for the transfer, the time when the contract was signed between the parties involved should be considered. As for the supply of movable goods, on the other hand, the time to be considered is when the goods are shipped or delivered.
For deferred invoicing, on the other hand, the invoice must be issued by the 15th day of the month following the act of purchase and sale. There is, however, an obligation for the latter to be valid: the supply of goods must absolutely be accompanied by a transport document.
In addition, it is essential to note on the invoice the date and number of the documents concerning transportation. However, it is not necessary to restate the date of shipment.
In addition to the above, under the law, Article 6 paragraph 4 stipulates that prior to the occurrence of the above-mentioned elements, whether the invoice is issued or the amount is paid in part or in full, the transaction is considered completed on the date of the invoice or payment.
What invoices are considered advance invoices?
As mentioned earlier, advance invoices can be issued only in special cases such as:
- collection of advance payments: the exception applies only to the sale of goods, since advance payments are considered the norm in the context of the provision of services;
- advance issuance of invoice: this means that the invoice is issued before shipment (in the case of goods) or before payment (in the case of services).
Only in the above two cases can we speak of an advance invoice. In each case we can find different wording in the literature. Regardless of the wording, to be considered as such, invoices must:
- contain all the mandatory information of traditional invoices;
- be entered in the appropriate register, resulting in the accounting entry of the VAT liability (for those who are subject to it).
For example, of freelancers, who allow deferred payment or provide for advance payments during the period of the service offered, will have to account for these accounting entries under the name of advance invoice, if they are compared with the final estimate of the overall invoice.
The advance invoice for freelancers
Freelancers are in the habit of issuing invoices, which can take a variety of nomenclatures: pro forma invoice, billing notice, notula. Despite the many names this type of invoice may have, it follows the same criteria for filling out a real invoice.
However, this practice is legally erroneous. In fact, those who fill out these types of invoices simply add the words " pro forma invoice" to distinguish them from traditional invoices.
These documents should not be filled out in this way, as they do not serve the same legal purpose as a traditional invoice for all intents and purposes, but are used to claim payment for a service without having to pay VAT taxable income, since the service provided has not yet been completed.
The Internal Revenue Service clearly specifies that it is not enough to call a document by a name other than invoice to strip it of its legal or tax effects.
Article 21, known as the VAT Decree, stipulates that an invoice, even if it falls into the category of pro forma invoices, is recognized as a real invoice because it contains all the typical elements of a traditional invoice.
Here are the aspects that characterize a pro forma invoice:
- it must state " proforma invoice," usually in the initial part preceding the descriptive section of the invoice;
- any numbering used must have nothing to do with the numbering usually used for tax invoices;
- it must have the following wording at the foot of the page: " This document does not constitute a valid invoice for the purposes of Presidential Decree 663 26/10/1972, as amended. The final invoice will be issued upon payment of the consideration (Article 6, paragraph 3, Presidential Decree 633/72)."
The advance invoice for the sale of goods
According to the regulations, an invoice is drawn up and accounted for when the product is delivered to the customer or final consignee, or through a carrier, with the accompaniment of an appropriate transport document.
If we consider the supply of goods and the provision of services, an advance billing can be issued before the buying and selling transaction takes place.
More in detail, it should be pointed out that for the supply of goods, advance invoicing is allowed before the delivery of goods and the issuance of the transport document.
Article 6(4) of Presidential Decree 633/1972 also specifies that in cases where the advance invoice covers the total amount of the transaction, the goods or services included in this advance invoicing can also be delivered without any additional document (invoice or transport document).
The role of advance invoice in the delivery of goods
The Presidential Decree of 1972, and several other regulations, have granted the right to invoice at a time prior to the issuance of the bill of lading.
Unfortunately, the regulations are not very clear on the subject, and the opinions of accountants and bookkeepers are also contradictory on this issue.
The problem exists especially in the case where a customer requests the invoice even before the delivery or shipment of the requested products. On the contrary, in the case where a supplier has to manufacture a custom-made item, he should have the possibility to issue an invoice even before the item itself is manufactured.
Our advice, in these cases, to avoid potential disputes, is to invoice in advance, indicating the expected delivery date, also pointing out an ultimate delivery date to dispel any doubts. Thereafter, it is preferable to attach to the goods sent and the file a second invoice whose figure is zero by reference to the invoice already paid in advance (accounted for as an advance invoice). For tax purposes, it will still be the official invoice in which the payment is indicated that will be accounted for.
Date of issue of the advance invoice
As we have repeated several times, the freelancer or one who offers services is obliged to issue an invoice under Article 6 Presidential Decree 633/1972. However, since there is the possibility of making and issuing an invoice even before payment, it should be pointed out that burdens and duties are generated by this action: the obligation to pay VAT for the person issuing the invoice and the right to deduct for the recipient.
The person in question can make a claim for deduction of an invoice with a transaction date of month X, only if he accounts for the said invoice by day 16 of month X+1 if monthly, or by day 16 of month X+2 if quarterly.
Do you still have doubts about the advance invoice? Unfortunately, it is a topic that still creates a lot of controversy and on which the regulations are not very clear. We have tried to be as precise and comprehensive as possible, but if you still have questions, please do not hesitate to ask them. Please share your comments with us in the feedback section.
Article translated from Italian