Down Payment
A down payment is a payment made by the customer before the company delivers goods or performs services. It is common for large orders, custom equipment, and long-term projects.
Billing
Explanation
In SAP, down payments are typically handled through:
• down payment requests, created from a billing plan in SAP SD,
• receipt of the payment and posting as a down payment liability,
• clearing of the down payment against the final invoice.
Down payments may be a fixed amount or a percentage of the order value.
Why It Matters
A down payment is not revenue. Under ASC 606 and IFRS 15, it represents an obligation to transfer goods or services and is presented as a contract liability until the performance obligations are satisfied. If the time between payment and performance is long, a significant financing component may need to be considered. In revenue accounting, down payments must be correctly linked to the contract so that contract balances are accurate.
Related Terms
Contract Liability · Billing Plan · Milestone Billing · Significant Financing Component
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