[Limited Release] How to account for an Invoice Advance

This content covers a different version of our accounting software. Would you like to learn more about invoices with Wave?

You created an invoice and sent it to your client, and you’re eligible for Invoice Advance. Here's how to bookkeep the funds you received.

United States

Accounting for an Invoice Advance means categorizing the advance correctly until your client pays their invoice. For example, let’s say you’ve sent your client an invoice for $1,000 and received the 80% advance, or $800.

Follow these three steps to account for the advance:

  1. When you receive the $800 advance, your bank connection will import the transaction automatically. If you don’t have a bank connection set up, you’ll need to manually enter the transaction. If you haven’t already, create a short-term liability account called “Advances from Wave,” and categorize the $800 advance to this account.
  2. When your customer pays their invoice, you’ll receive their $1,000. If you’re using Payments by Wave, this part of the accounting will be done for you. If not, enter the payment and categorize it as a payment to the invoice. Your invoice is now marked as paid.
  3. Repayment to Wave will happen automatically when your customer pays their invoice. When you see the repayment transaction (or if you enter it manually), split the expense transaction into two parts: the $800 due to Wave, and the $16 advance fee. Categorize the $800 repayment to your “Advances from Wave” account, and the $16 to an operating expense account called “Invoice advance fees” or something similar.

You can create this account from the Transaction page if you haven’t already.

You’ve successfully accounted for your advance and its repayment, and your books are balanced!

What if my agreement with my client changes and I reduce the invoice amount?

If you reduce the amount of the invoice after you’ve received your advance, the proportionate amount of the advance and fee will be automatically repaid to Wave. In other words, if you reduce the invoice total by 40%, 40% of the advance will automatically repay to Wave.

Returning to the example of the $1,000 invoice, you received an $800 advance. If you reduced the amount of the invoice to $500 (50% of the original invoice amount), you would automatically repay $400 of the $800 advance, or 50% of the advance, in addition to an $8 fee (50% of the original $16 fee).

When your customer pays the now $500 invoice, you would repay the remaining $408 to Wave.

Because reducing an invoice after you receive an advance will increase the amount you owe relative to the invoice total, Wave recommends confirming the invoice total with your customer before requesting an advance.

Canada

When you receive an invoice advance, you need to account for the funds you receive, and for the repayment. In this example, let’s say you took an advance of $1,000.

  • When you receive the $1,000 advance in your bank account, your bank connection will import the transaction automatically. If you don’t have a bank connection set up, you’ll need to manually enter the transaction. If you haven’t already, create a short-term liability account called “Due to Wave,” and categorize the $1,000 advance to this account.
  • You pay Wave back for the advance in four equal instalments. These repayments trigger automatically. In this example, the $1,000 advance had a 3% fee applied. Each instalment will be for $257.50 (¼ of $1,000 + 3%). When you see the repayment transactions import from your bank connection (or if you enter it manually), split the expense transaction into two parts: the $250 repayment, and the $7.50 advance fee. Categorize the $250 repayment to your “Due to Wave” account and the $7.50 to an operating expense account called “Invoice advance fees” or something similar. Do this for each instalment as they occur.

You can create this account from the Transaction page if you haven’t already.

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