Client pays in advance?

[Manic]

I have a new client who wishes to pay for several days of effort in advance. They seem to think this is a good thing for me and would like me to discount my normal rate.

TBH I'm not really that fussed that they pay in advance as cash flow is good, it's not so many days that I can earn that much interest.

Does anyone have any opinion on whether this will cause other headaches, VAT and CT especially, as the work is likely to span two years of accounts.

Can't believe it will affect IR35, so assuming that is dependant on all the other contractual terms.

Ta muchly

[techno]

Hi

One of my customers does this, pays me fortnightly in advance.

I am on cash accounting VAT so I only pay when I receive the monies so no difference there!

The biggest headache is really when I decide to have a day off / doing other things as suddenly I have been paid for 10 days but I have only worked 7 so on the next invoice, rather than invoice for another 10 days I now invoice only the difference (7 days) but for a 10 day calendar period - if that makes sense!

[Manic]

Yeah I get what you mean however this is slightly different. We have several clients, this particuylar one wishes to PO us for 10days, they then draw them down maybe a day or 2 days at a time over a period, at a mutually agreeable time.

Effectively the day off issue won't be a problem, however we won't use the days for several months.

[Spacecadet]

sounds like a classic deferred revenue situation

You have the money... but you can't really call it income untill the work has been done... after all, if you fell out with the client after only 2 days work they would want 8 days worth of money back.

It would have to be entered as deferred revenue within your accounts, this properly identifies it as a liability, once the work has been done you can then make an entry to cancel the liabilty and then make a new entry to recognise the actual income.

How this is handled depends on the system you're using for your accounts.
If your accountant deals with all of that then speak to them

[Manic]

sounds like a classic deferred revenue situation

You have the money... but you can't really call it income untill the work has been done... after all, if you fell out with the client after only 2 days work they would want 8 days worth of money back.

It would have to be entered as deferred revenue within your accounts, this properly identifies it as a liability, once the work has been done you can then make an entry to cancel the liabilty and then make a new entry to recognise the actual income.

How this is handled depends on the system you're using for your accounts.
If your accountant deals with all of that then speak to them

Thanks spacecadet. I'm using spreadsheets at present, so this may be a headache. I'm assuming VAT is deferred also?

[Spacecadet]

Thanks spacecadet. I'm using spreadsheets at present, so this may be a headache. I'm assuming VAT is deferred also?

I'm afraid thats the limit of my knowledge on the subject
I've not had to do it for my own accountants, only deal with it on clients accounting systems and had the deferred revenue process explained to me a few times by various accountants