- A pre-invoice customer payment is a liability you owe against future delivery, so the entry should debit cash and credit a customer-deposit liability account, not revenue or receivables.
- Left unapplied in the cash receipts journal, Business Central's default posts the payment against the customer's accounts receivable even with no invoice, overstating receivables.
- For structured up-front billing, the prepayment feature generates a prepayment invoice posted to a prepayment account in the General Posting Setup, and clears automatically at full invoicing.
- For ad-hoc deposits against an open bid, configure the cash receipt to post to a dedicated deposit-liability GL account that's applied once the order is delivered and billed.
A few weeks back, the accounting manager at an amusement-equipment company asked a question that trips up a lot of finance teams: when a customer wires a big deposit before we've invoiced anything, where should that money land?
It's a small question with a real impact on your balance sheet, and Business Central, Microsoft's cloud ERP (enterprise resource planning) system, has a clean answer once you know where to look.
A deposit is a liability, not a receivable
When a customer pays you before you've delivered or invoiced, that cash isn't revenue and it isn't accounts receivable. You owe them a product. In accounting terms it's a liability: a customer deposit you're holding against future delivery. The entry should debit cash and credit a customer-deposit liability account.
Here's where teams get burned. If you drop that payment into the cash receipts journal and leave it unapplied, Business Central's default behavior posts it against the customer's accounts receivable, even though no invoice exists yet. Do that across a few large deposits and your receivables are overstated and your balance sheet is wrong.
Two correct ways to handle it
Business Central gives you two built-in mechanisms, and which one you use depends on how you take the money.
Sales-order prepayments
If you bill a structured percentage up front, use the prepayment feature. Set a prepayment percentage on the sales order, and the system generates a prepayment invoice. The posting is driven by a prepayment account you define in the General Posting Setup, so the money lands where it should. When you finally invoice the order in full, the prepayment is applied and clears automatically.
A deposit against an open quote or bid
If you're taking an ad-hoc deposit against a bid that isn't a formal order yet, you can configure the cash receipt to post to a dedicated deposit-liability general ledger account instead of receivables. The deposit sits on that liability account and is applied against the customer's invoice once the order is delivered and billed.
Either way, the idea is the same: the money rests on a liability account until you've earned it, then clears when you invoice. Use the prepayment feature when you bill a set percentage up front, and the deposit-posting approach when deposits are more ad hoc.
Why this is worth getting right
Deposits handled the lazy way don't just misstate one account. They distort receivables aging, they make collections look worse than they are, and they hand your outside accountants a reconciliation headache every month. Handled correctly, the deposit shows up as exactly what it is, money you're holding, and it disappears cleanly the moment you deliver.
If you take customer deposits and aren't sure they're landing in the right place in Business Central, that's a quick thing to check and a quick thing to fix. We're happy to take a look. Let's talk it through.