Advance Invoice: What It Is and How to Issue One

Advance invoices are among the most widely used yet least understood documents in business practice. Many OSVČ are unsure when to issue an advance invoice, how to correctly handle VAT on deposits, and what the relationship is between an advance invoice and a final settlement invoice. This article provides a complete guide to help you navigate the world of advance invoices.

What Is an Advance Invoice

An advance invoice (sometimes called a proforma invoice) is a document by which a supplier requests payment of a deposit from a customer before delivering goods or providing a service. It is essentially a request for payment.

The Difference Between an Advance Invoice and a Regular Invoice

The key difference is:

• A regular invoice documents a transaction that has already taken place (delivery of goods, provision of a service)
• An advance invoice is a request for payment before the transaction takes place
• A regular invoice is a tax document (for VAT-registered businesses); an advance invoice is not
• An advance invoice is not subject to the mandatory requirements that apply to tax documents

When Is an Advance Invoice Used

In practice, advance invoices are used in many situations:

• Custom services — web design, programming, graphic work
• Construction work — before a project begins
• Large goods orders — especially custom orders
• Long-term projects — ongoing deposits tied to milestones
• New customers — securing payment before investing time and resources

How to Issue an Advance Invoice — Step by Step

What an Advance Invoice Should Contain

Because an advance invoice is not a tax document, it is not subject to strict statutory requirements. Nevertheless, it should include:

Required Information

• Label — a clear designation such as "Advance Invoice" or "Proforma Invoice"
• Document number — a unique identifier
• Date of issue
• Due date
• Supplier details — name/company name, address, company registration number
• Customer details — name/company name, address, company registration number
• Description of the transaction — what the deposit is for
• Amount requested
• Payment details — bank account number, variable symbol

Recommended Information

• Reference to the contract or order
• Information about the total project price
• The deposit as a percentage of the total price
• Settlement conditions

Advance Invoices and VAT — A Complete Guide

VAT on deposits is one of the most complex areas of invoicing. Let's look at it in detail.

If You Are NOT VAT-Registered

The situation is straightforward:

1. You issue an advance invoice (without VAT, since you're not registered)
2. The customer pays the deposit
3. After delivery, you issue a settlement invoice (without VAT)
4. The customer pays the remaining balance

You do not need to issue any special tax documents.

If You ARE VAT-Registered

The process is more complex here, because receiving a deposit is a taxable supply for VAT purposes:

Tax Document for Received Payment

This document is essential for correctly settling VAT. It must contain:

• The designation "Tax Document for Received Payment"
• The document reference number
• Identifying details of both the supplier and the customer (including VAT numbers)
• Date of issue and date of payment received
• Amount received
• Tax base and VAT amount
• VAT rate
• Reference to the contract or advance invoice

The Settlement (Final) Invoice

Once the supply has been completed, a settlement invoice must be issued. This closes the entire advance payment cycle.

What the Settlement Invoice Must Contain

• All standard tax document requirements
• Total price of the supply (tax base + VAT)
• Summary of deposits received, with references to the tax documents issued for those payments
• Deduction of deposits received (tax base and VAT shown separately)
• Balance due (or any overpayment to be refunded)

Recording Advance Invoices in Cash-Basis Accounting

Deposit Received (You Are the Supplier)

In cash-basis accounting, a received deposit is recorded as income at the moment the payment arrives in your account. Note that this is income that affects your income tax base.

Deposit Paid (You Are the Customer)

A deposit you have paid to a supplier is recorded as an expense at the time of payment in cash-basis accounting. However:

• A deposit for goods or services not yet delivered is recorded as an expense affecting the tax base only at the point of delivery (under the actual expenses method)
• If you use the flat-rate expense method, this issue does not arise, as individual expenses are not claimed separately

Multiple Deposits for a Single Project

For larger projects, it is common to issue several advance invoices at different stages:

Refunding a Deposit

What should you do if a project falls through and the deposit needs to be returned?

Steps for Refunding a Deposit

1. Agree with the customer on the refund
2. If you issued a tax document for the received payment, you must issue a corrective tax document (credit note)
3. The VAT on the corrective document is adjusted in the return for the period in which the customer received the corrective document
4. Refund the deposit to the customer's account

What If the Project Price Changes

If the final price differs from the originally agreed amount and the deposit exceeds the final price, show the overpayment on the settlement invoice and refund the difference to the customer.

Common Mistakes with Advance Invoices

1. Confusing an Advance Invoice with a Tax Document

An advance invoice is never a tax document. The customer cannot use it to claim a VAT deduction. Only the tax document issued for the received payment qualifies as a tax document.

2. Failing to Issue a Tax Document for the Received Payment

VAT-registered businesses are required to issue a tax document within 15 days of receiving a deposit. Failing to do so can result in a penalty from the tax authority.

3. Incorrectly Deducting the Deposit on the Settlement Invoice

On the settlement invoice, the deposit must be deducted correctly — with the tax base and VAT shown separately. An error in the deduction can lead to double taxation or, conversely, to VAT not being remitted at all.

4. Wrong Date of Taxable Supply

On the tax document for received payment, the date of taxable supply is the date the payment was received — not the date the advance invoice was issued.

5. Deposit Exceeds the Final Price

If the deposit exceeds the final price, an overpayment arises. The settlement invoice must clearly show the overpayment, which must then be refunded to the customer.

Advance Invoice in Practice: Template

For correctly issuing an advance invoice, we recommend the following structure:

How DokladBot Simplifies Deposit Management for You

Managing advance invoices is one of the most administratively demanding areas of invoicing. DokladBot helps you by:

• Automatically tracking the status of deposits — which have been paid and which are missing a tax document
• Reminding you of the obligation to issue a tax document for received payment within 15 days
• Calculating the correct deposit deduction on the settlement invoice
• Keeping track of the correct VAT at every stage of the deposit cycle
• Archiving all documents in one place

Simply send a photo of your advance invoice via WhatsApp and DokladBot will take care of the record-keeping and remind you of the next steps.

Get started with DokladBot today — dokladbot.cz

Frequently Asked Questions (FAQ)

Is an advance invoice the same as a proforma invoice?

In Czech practice, the terms "advance invoice" and "proforma invoice" are used interchangeably. Both refer to a request for payment that is not a tax document. Some businesses distinguish between a proforma (a non-binding price quote) and an advance invoice (a binding payment request), but the law makes no such distinction.

Do I have to issue an advance invoice, or can I request a deposit another way?

You are not required to issue an advance invoice. You can request a deposit on the basis of a contract, purchase order, or any other agreement. However, an advance invoice is the standard and professional way to communicate payment details to a customer.

What if the customer pays a deposit but I don't deliver the service?

In that case, you are obliged to return the deposit. If you are VAT-registered and have already issued a tax document for the received payment, you must issue a corrective tax document (credit note) and reclaim the VAT remitted in the relevant tax return.

Can I request a deposit of 100% of the price?

Yes — the law does not limit the amount of a deposit. A 100% deposit is common for smaller projects or when working with new customers. Even in this case, a settlement invoice must be issued after completion (for VAT-registered businesses).

How do I record a deposit in my income tax return?

In cash-basis accounting, a received deposit is recorded as income at the moment the money is received. In double-entry accounting, the deposit is posted to a liability account and recognised as revenue only when the supply is completed.

Can I issue an advance invoice even if I'm not VAT-registered?

Yes. As a non-VAT-registered business, the process is even simpler — you don't need to issue a tax document for the received payment or deal with VAT deductions on the settlement invoice. An advance invoice and a final settlement invoice are all you need.

What is the limitation period for deposits?

The limitation period for deposits is governed by the Civil Code and is 3 years from the moment the right could first be exercised. If the supplier fails to deliver the service, the customer has the right to claim a refund of the deposit for up to 3 years.