Customer prepayments and deposits in Business Central: a configuration walkthrough

If your business asks customers to pay something up front, a deposit on a custom order, a retainer, a percentage before you start, then that money isn't revenue yet. It's a liability: you owe the customer either the work or their money back. Recording it correctly keeps your books honest and your cash flow clear. This guide walks through two ways to handle it in Business Central, Microsoft's enterprise resource planning (ERP) system for small and mid-sized businesses. The first is the built-in prepayments feature, which ties the up-front money to a specific sales order. The second is a simpler deposit posted straight to a liability account when you don't need that link. By the end you'll know how to set up both and when to reach for each.

Before you start

• You need permission to edit posting setup and the chart of accounts, typically an admin or SUPER permission set.
• Have (or create) two balance-sheet liability accounts: one for sales prepayments and, if you want it separate, one for general customer deposits. Talk to your accountant about the right account numbers.
• Know your typical up-front percentage. Prepayments work as a percentage of the order, so 50% is common for custom work.

Step 1: Set up the prepayment G/L accounts

Business Central needs to know which liability account to credit when you post a prepayment. That lives in General Posting Setup.

1. Choose the search icon, type General Posting Setup, and open it.
2. For each combination of Gen. Bus. Posting Group and Gen. Prod. Posting Group you sell under, find the Sales Prepayments Account field and set it to your sales-prepayment liability account.
3. If you only have one or two posting-group combinations, set them all to the same account for simplicity. If you sell across very different lines, you can point each at its own account.

Step 2: Set up prepayment number series

1. Search for Sales & Receivables Setup and open it.
2. On the Number Series FastTab, set Posted Prepmt. Inv. Nos. and Posted Prepmt. Cr. Memo Nos. You can reuse your normal posted-invoice series or give prepayments their own, which makes them easier to spot later.

Step 3: Set a default prepayment percentage (optional but handy)

You can set the percentage in three places, from broadest to most specific. The most specific one wins.

1. On the customer: open the Customer card, find the Invoicing FastTab, and set Prepayment %. Every order for that customer starts there.
2. On the item or a customer/item rule: search for Sales Prepayment Percentages to set a default for specific items or item-and-customer pairs.
3. On the order itself: you can always override on the Prepayment FastTab of the sales order, or change Prepayment % line by line.

Step 4: Post a prepayment invoice

1. Create a normal Sales Order for the customer and add the lines.
2. Open the Prepayment FastTab and confirm the Prepayment % (or set a flat Prepmt. Amt. Excl. VAT on the lines).
3. From the order, choose Prepare, then Prepayment, then Post Prepayment Invoice (you can preview with Show Prepayment Statistics first).
4. Send that prepayment invoice to the customer. When they pay it, you receive and apply the payment against it just like any other invoice. The credit sits in your prepayment liability account.

Step 5: Apply the prepayment at final invoicing

This is the part the feature handles for you, and the reason to use it.

1. When the work ships or completes, post the sales order the normal way: Post, then Ship and Invoice (or Invoice).
2. Business Central automatically reverses the prepayment out of the liability account and applies it against the final invoice, so the customer is billed only for the remaining balance.
3. The final document shows the full amount, the prepayment already applied, and the net due. Nothing is left stranded in the liability account for that order.

Step 6: The simpler alternative, an ad-hoc deposit

Sometimes you take money before there's even an order, a goodwill deposit, a retainer, a hold on a slot. Wiring it through the full prepayment feature is overkill. Post it straight to a liability account instead.

1. Search for Cash Receipt Journal and open it.
2. On a line, set the Account Type to Customer and pick the customer (so it shows on their ledger), or set it to Bank Account for the debit side.
3. Use the Balancing Account to route the credit to your customer-deposit liability account, or post a two-line journal: debit Bank, credit the deposit liability account, with the customer in the Description or via a dimension so you can find it.
4. When you finally invoice the customer, create a credit/payment application or a refund that clears the deposit liability against their invoice.

Which one should you use?

Use prepayments when the money is tied to a specific order and you want Business Central to track and clear it automatically. Use the ad-hoc deposit when there's no order yet, or when you only take deposits occasionally and don't want the setup overhead. The deposit method is more manual, so you carry the responsibility of clearing it yourself.

Verify it

Post a test prepayment on a dummy order in a sandbox or test company. Check that the liability account went up by the prepayment amount, then post the final invoice and confirm the liability returns to zero for that order and the customer is billed only the balance. For the deposit method, confirm the liability account holds the deposit until you clear it.

What to do next

Pick one method per situation and write it down so your team is consistent. Add the open-prepayment or deposit-liability balance to your month-end close checklist so nothing lingers. If you want a recurring report or an alert when a prepayment ages past a certain point, that's a quick automation we can set up with you.