The advance invoice: a special case of invoicing
Presidential Decree 633/1972, better known as the VAT Decree, specifies in Article 21 that an invoice must be issued ' at the time the transaction is performed'. Thus, an invoice must be issued at the time of payment for the goods 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 is 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 drawn up by the company prior to the execution of the payment transaction. It is, however, to all intents and purposes a genuine invoice that meets all the legal requirements imposed for the issuance of a traditional invoice. It is a tax document certifying, to 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 regarded as a kind of financing consisting in the advance payment 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.
An 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 certain 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 used by companies that are unable to guarantee payment of the invoices for which they are creditors and that, with the immediate invoice, can collect cash immediately, so as to cover the amount they are owed.
How to Identify the Time of the Transaction
In order to identify the moment at which the transaction is to be effected, the rules contained in Article 6 must be taken as a point of reference. The latter provides for different rules for each type of transaction. Two main types of transaction are distinguished: the supply of goods (movable and immovable property) and the provision of services.
With regard to the supply, it is appropriate to consider the moment when the contract was signed between the parties concerned. With regard to the supply of movable goods, on the other hand, the moment to be considered is when the goods are dispatched or delivered.
For deferred invoicing, on the other hand, the invoice must be issued by the fifteenth day of the month following the act of sale. There is, however, an obligation for this invoice 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 transport documents. However, it is not necessary to reiterate the date of dispatch.
In addition to the above, Art. 6 para. 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 deemed to have been completed on the date of the invoice or payment.
Which invoices are considered advance invoices?
As mentioned above, advance invoices may only be issued in special cases such as
- collection of down payments: the derogation only applies to the supply of goods, as down payments are considered the norm in the context of services;
- advance issuance of the invoice: this means that the invoice is issued before dispatch (in the case of goods) or before payment (in the case of services).
Only in the two cases mentioned above can we speak of an advance invoice. In any case, we can find different wordings 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, with the consequent accounting entry of the VAT debt (for those subject to it).
For example, freelancers, who allow payment to be deferred 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 that can take various nomenclatures: pro forma invoice, bill of parcels, notula. In spite of the many names this type of invoice may have, it follows the same criteria as a real invoice.
However, this practice is wrong from a legal point of view. In fact, those who compile this type of invoice simply add the words ' pro forma invoice' to distinguish them from traditional invoices.
These documents should not be filled out in this way, since they do not have 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, 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 fiscal effects.
Article 21, known as the VAT Decree, stipulates that an invoice, even if it falls into the category of a pro forma invoice, is recognised as a genuine invoice because it contains all the typical elements of a traditional invoice.
Here are the aspects that characterise a pro forma invoice
- it must bear the words ' pro forma 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 bear 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 shall be issued upon payment of the consideration (Article 6, paragraph 3, Presidential Decree 633/72)'.
The advance invoice for the supply of goods
According to the legislation, an invoice is drawn up and accounted for when the product is delivered to the customer or the final recipient, or via a carrier, with the accompanying transport document.
If we consider the supply of goods and the provision of services, an invoice can be issued in advance before the purchase transaction takes place.
More specifically, it should be noted that for the supply of goods, advance invoicing is permitted before the delivery of the goods and the issue of the transport document.
Article 6(4) of Presidential Decree 633/1972 further specifies that where the advance invoice covers the total amount of the transaction, the goods or services included in this advance invoice may also be delivered without any additional document (invoice or transport document).
The role of the advance invoice in the delivery of goods
The Presidential Decree of 1972, and several other regulations, have granted the right to invoice at a point in time before the delivery note is issued.
Unfortunately, the legislation is not very clear on the subject and the opinions of accountants and bookkeeping experts are also contradictory in this respect.
The problem arises especially in the case where a customer requests an invoice even before the delivery or dispatch of the goods requested. Conversely, in the case where a supplier has to manufacture a customised object, it must be possible to issue an invoice even before the object itself is manufactured.
Our advice in such cases, to avoid potential disputes, is to invoice in advance, stating the expected delivery date, and also to indicate a final delivery date to dispel any doubts. Afterwards, it is preferable to attach a second invoice to the goods sent and to the file, the amount of which 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 stated that will be accounted for.
Date of issue of the advance invoice
As we have repeated several times, the freelancer or provider of services is obliged to issue an invoice pursuant to Article 6 of Presidential Decree 633/1972. However, since there is the possibility of making and issuing an invoice even before payment, it must be pointed out that charges 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 only claim the deduction of an invoice with a transaction date of month X, if he accounts for that invoice by the 16th day of month X+1 if monthly, or by the 16th day 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 legislation is 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. Please share your comments with us in the feedback section.
Article translated from Italian