Maximising revenue is the key to mastering your cash flow. The more money you have going into your business, the easier it is to allocate funds for capital investments, pay your bills on time and retain positive relationships with your suppliers. The trouble is that it can often advanced payment seem as though funds are leaving your business faster than you can claw them back. Whenever an advance payment is made, the accounting entry is expressed as a debit to the asset Cash for the amount received. A credit also needs to be made to the liability account – something along the lines of Advance Payments, Unearned Revenue, or Customer Advances.
In some instances, it may make more sense to implement advance payments for new clients, or those that have a history of late payment. However, advance payments need to be accounted for in order to balance your books and keep your business finances harmonious.Advance payments is an umbrella term for any revenue that is received in advance of goods or services being delivered and payment being earned by the company. Advance payment is often used as a form of insurance to mitigate the risks associated with non-payment. Some companies exclusively take payment in advance, while others reserve it for special circumstances.