Eu Compatible Billing ?

[richardh]

Hello,

 

I've just installed a 30 day blesta trial and I havn't found out how to setup EU compliant invoicing.

 

With our current system we only create an invoice when the customer has paid or when we are sure the customer will pay.

 

Mot US systems seem to create an invoice to tell the customer they have to renew. However in europe it can not work like this, as invoices numbers have to follow and every invoice you create to have to pay the amount of VAT to the government at the end of the year unless you generate a refund.

 

EU customers are not used to this system and need to just recieve an e-mail asking them to renew and have the option to renew their plans from within the client interface too.

 

In europe an invoice means a third party owes you money and our customers can decide to not renew if they don't want to by just not paying for their renewal.

 

We would need to not have an invoice created when a customer should renew but an Order and our staff have the option to transform it to an invoice with a sequential numbering system for invoices alone even if they are not paid.

 

Is this possible with blesta ? Or sould we continue developping our own system ?

 

Thanks

[Michael]

That sounds very different to the UK, we follow what you claim only US do. It would be compatible if you edit the way the invoice system works, but they might be able to make it work for your needs if you do a feature request, have you got any documents to back that because I still don't understand why the UK wouldn't be following the EU guidelines if that's how Europe works.

[richardh]

I found this for the UK :

 

http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm

 

What a VAT invoice must show

A VAT invoice must show:

• an invoice number which is unique and follows on from the number of the previous invoice - if you spoil or cancel a serially numbered invoice, you must keep it to show to a VAT officer at your next VAT inspection

 

 

If I understand this correctly in the UK you also have to have invoices with numbers that follow and you have to keep all invoices for VAT inspection, meaning that you should keep all invoices even unpaid ones.

 

The only difference here is that you can cancel an invoice whereas in France you can't cancel an invoice you have to create a credit to cancel an invoice.

[richardh]

You really need all invoices to be proforma except when they are paid or manually issued.

 

Pro-forma invoices

If you need to issue a sales document for goods or services you haven't supplied yet, you can issue a 'pro-forma' invoice or a similar document to offer goods or services to customers.

A pro-forma invoice is not a VAT invoice, and you should clearly mark them with the words 'This is not a VAT invoice'.

[richardh]

Are there any hooks for the invoicing system that would allow me to hide the default invoice number rename Invoice to Pro Forma Invoice until the invoice is paid or the service is supplied and add a custom field that I would automaticaly fill with a sequential invoice number ?

[Paul]

Proforma invoices are coming, part of CORE-497. I don't have an ETA for you yet, tentatively scheduled for 3.2 but not guaranteed to be in this release.

[Michael]

I found this for the UK :

 

http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm

 

 

 

If I understand this correctly in the UK you also have to have invoices with numbers that follow and you have to keep all invoices for VAT inspection, meaning that you should keep all invoices even unpaid ones.

 

The only difference here is that you can cancel an invoice whereas in France you can't cancel an invoice you have to create a credit to cancel an invoice.

 

Yeah they are all unique numbers anyway and you can't delete invoices on Blesta like other billing systems which is good as you have to keep them.

 

VAT is only needed for companies who have made enough income here and have to be VAT Registered. But I don't remember hearing they have to have certain things and have to invoice them specially not automatically. 

 

I suppose you could invoice them normally and if they are a business create a VAT Invoice for them manually. 

[richardh]

I think it's the same in all the EU.

 

Obviously if you don't charge VAT then you're not concerned by this.

 

Otherwise you only give an invoice when you have supplied the service and not before knowing if the customer want's to renew or not unless, of course, if you have a contract with them that specifies the account is automaticaly renewed if they don't warn you however many days/weeks before their hosting expires.

 

Good news about the proforma invoicing, however I don't think we will be able to wait so we will continue with our projet of developping our own system.

 

There are some things like queues (for suppliers that limit the number of simultanious connections to their API) that we would have to develop our own modules for anyway.

[Paul]

 

Good news about the proforma invoicing, however I don't think we will be able to wait so we will continue with our projet of developping our own system.

 

 

If you are considering developing your own system, consider this.. Blesta is 99.9% open, you can modify it to include proforma invoices. You might even be able to re-purpose draft invoices for this without too much trouble.

[Max]

VAT is only needed for companies who have made enough income here and have to be VAT Registered.

 

I once worked at a very small IT company in the UK.

They proudly displayed their VAT registration certificate in a picture frame on the wall...

 

However in other countries thresholds are much lower -or non-existent- and virtually all companies are VAT registered.

 

 

>But I don't remember hearing they have to have certain things and have to invoice them specially not automatically.

 

It is not required.

 

You can indeed just write out a normal invoice.

But in the EU the accrual accounting method is used, and not cash accounting.

This means that the moment you write out the invoice, you owe VAT to the government, which you usually have to pay to them monthly, quarterly or yearly depending on country and the size of your company. 

 

If some time later you find out you are unable to collect payment, you do have the option to cancel the invoice by creating a credit note with negative amounts, and get the VAT you may have already paid back at the end of the next accounting period.

Writing out a credit note is currently not possible with Blesta though. There is another thread on that.

 

 

Another option is writing out pro-forma invoices first and a normal invoice after payment.

The upside is that you do not owe VAT instantly if you are doing it that way, and can postpone it until you are sure of payment.

The downside is that a pro-forma invoice is essentially a voluntary offer to the customer. He has no obligation to pay it, and you cannot take follow-up action against him if he does not (cannot send it to a debt collection agency, etc.)

Whether that is a problem depends on what you are selling and the terms you have with the customer.

[Michael]

I once worked at a very small IT company in the UK.

They proudly displayed their VAT registration certificate in a picture frame on the wall...

 

However in other countries thresholds are much lower -or non-existent- and virtually all companies are VAT registered.

 

 

>But I don't remember hearing they have to have certain things and have to invoice them specially not automatically.

 

It is not required.

 

You can indeed just write out a normal invoice.

But in the EU the accrual accounting method is used, and not cash accounting.

This means that the moment you write out the invoice, you owe VAT to the government, which you usually have to pay to them monthly, quarterly or yearly depending on country and the size of your company. 

 

If some time later you find out you are unable to collect payment, you do have the option to cancel the invoice by creating a credit note with negative amounts, and get the VAT you may have already paid back at the end of the next accounting period.

Writing out a credit note is currently not possible with Blesta though. There is another thread on that.

 

 

Another option is writing out pro-forma invoices first and a normal invoice after payment.

The upside is that you do not owe VAT instantly if you are doing it that way, and can postpone it until you are sure of payment.

The downside is that a pro-forma invoice is essentially a voluntary offer to the customer. He has no obligation to pay it, and you cannot take follow-up action against him if he does not (cannot send it to a debt collection agency, etc.)

Whether that is a problem depends on what your selling and the terms you have with the customer.

 

Thank you I know now why this is needed

[Michael]

Travelodge UK, has a way to request a VAT invoice, would that be better suited for Blesta?

 

https://www.travelodge.co.uk/request_a_vat_invoice/

[bruzli]

This is what keeps us away from Blesta too. We have a license but it's just getting dust for now.

When EU billing was not available in other apps a couple years ago we used to keep 2 systems - one for proforma(and also managing customers and hosting accounts) and external app for final fiscal invoice. 

[Paul]

This is what keeps us away from Blesta too. We have a license but it's just getting dust for now.

When EU billing was not available in other apps a couple years ago we used to keep 2 systems - one for proforma(and also managing customers and hosting accounts) and external app for final fiscal invoice. 

 

The plan is to add a company and perhaps client group setting to enable proforma invoicing. Then, Blesta would create proforma invoices by default, and once paid, these proforma invoices would become normal invoices. Proforma invoices have their own numbering scheme, and are not simply converted to an invoice.

 

Someone named Bjorn emailed us what I believe to be a clear description of proforma invoices. I'm including what he wrote here, so that we can solicit your feedback and provide some dialogue as we lead up to development on this.

 

 

Billing and accounting:

• In many European countries, the principle in use when tracking income and expenses by law is the accrual principle (http://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accounting). In short, this means that one is liable to pay sales tax when an invoice is issued, not when it is paid. As a consequence, if an invoice is not paid, one will either have to issue a credit memo (if the product is “returned”, in case of subscriptions, cancelled after an invoice was issued), or one will have to write the invoice off as a loss (which has a different set of rules, an invoice cannot be written off as a loss unless a certain time period has passed, it has been dunned a number of times, etc. In Norway, for instance, the minimum time that needs to pass before an invoice can be marked as lost is 6 months).

The consequence of this is, of course, that the business will have to pay sales tax even though the money is yet to be received from the customer. It also means that as one credits or writes off an invoice as lost, one will get the already paid taxes refunded, but as indicated above, that might take up to six months.

A way around this is to issue proforma invoices. Proforma invoices basically means that the seller has an obligation to sell a certain product or service to the customer, but the sale has not yet been made. First upon payment will there be a real invoice issued. The upside is that a proforma invoice does not generate sales tax liability, and while sales tax liability eventually will occur, it will not occur until the real invoice has been generated (which in turn will not happen until the payment has been made). This model means that there will be no issues with cash flow for the seller, as he will not have to put up an advance on the sales tax.

However, it has some practical implications: First of all, issuing a proforma invoice should never create any entries in the accounting system. It can be compared with a quote, yet, it is not called a quote.

Secondly, the numbering of proforma invoices and normal invoices must be distinguished. E.g. a proforma invoice must appear with the name “Proforma invoice” and a separate numbering, like P-100000, which cannot be confused with the normal invoice numbering.

Third, as proforma invoices are paid, they are converted to invoices in the order that they were paid, not in the order the proforma invoices were generated. E.g. Let’s say we generate proforma invoices P-1, P-2 and P-3. Our standard invoice numbering series start on 1000. P-3 is paid first. A normal invoice, 1000 is created. P1 is paid second, a normal invoice 1001 is created and so on.

Fourth, proforma invoices cannot have late fees added to them, and they cannot be sent to collections.

[Max]

Travelodge UK, has a way to request a VAT invoice, would that be better suited for Blesta?

 

https://www.travelodge.co.uk/request_a_vat_invoice/

 

No.

Handing out invoices on request is only allowed if you have no knowledge whether you are selling to a consumer or a VAT registered business.

Like when you run a brick-and-mortar store and it cannot be reasonably expected that you know who the customers that come in are.

 

If you do know that your customers are businesses (e.g. they filled in the company name on the order form), you are obliged to issue a VAT invoice without them asking.

[Michael]

No.

Handing out invoices on request is only allowed if you have no knowledge whether you are selling to a consumer or a VAT registered business.

Like when you run a brick-and-mortar store and it cannot be reasonably expected that you know who the customers that come in are.

 

If you do know that your customers are businesses (e.g. they filled in the company name on the order form), you are obliged to issue a VAT invoice without them asking.

 

Ah, maybe a dropdown on the registration page:

 

- Personal Customer

- Business Customer

 

Because not all customers are businesses or would it be better like:

 

- Personal Customer

- Business Customer

- Company Customer

[Max]

The plan is to add a company and perhaps client group setting to enable proforma invoicing.

 

Perhaps also an option to override it per product?

[Paul]

Perhaps also an option to override it per product?

 

What would be the benefit of a per-product override? You are either under EU rules, or you aren't, right?

[Max]

What would be the benefit of a per-product override? You are either under EU rules, or you aren't, right?

 

Pro-forma invoices are mainly meant for services that expire unless renewed by the customer.

E.g. domain names, shared hosting.

 

If the customer has a payment obligation he should receive a normal invoice.

E.g. co-location contracts with a 1 year minimum term, and the requirement that cancellations are done in writing.

[Paul]

Pro-forma invoices are mainly meant for services that expire unless renewed by the customer.

E.g. domain names, shared hosting.

 

If the customer has a payment obligation he should receive a normal invoice.

E.g. co-location contracts with a 1 year minimum term, and the requirement that cancellations are done in writing.

 

That makes sense. In that case, what happens if the customer drops off the earth and breaks contract? I'm assuming you'd then be liable for the tax on on this non-collectable amount. Or is there a way around it?

 

My assumption has been in part that creating a proforma invoice first not only ensures that the customer agrees to renew, but that they pay before you're liable for any tax. I'm not sure how chargebacks are accounted for, but maybe broken contracts are handled similarly?

 

I'm curious whether proforma invoices are a big problem, or a minor inconvenience for contracted services, and whether its common practice for companies to issue proforma invoices in these cases.

[Max]

That makes sense. In that case, what happens if the customer drops off the earth and breaks contract? I'm assuming you'd then be liable for the tax on on this non-collectable amount. Or is there a way around it?

 

 

The way around it is to correct the invoice with a credit note later.

Whether you still end up paying VAT over it -and if you did- how long it takes before you get it back, depends on when the invoice and credit note were issued.

 

 

Our company pays VAT at the end of every quarter.

 

Q1 accounting period January-March  - VAT payment to gov. due in April

Q2 accounting period April-June  - VAT payment to gov. due in July

 

If both the original invoice and the credit note falls in the same accounting period, we do not end up having to actually pay VAT over it, and there is not a real issue.

 

- on 15 January we issue an invoice for 1210 EUR of which 210 EUR is VAT.

- It doesn't get paid. reminders -> phone calls -> collection agency -> no luck.

- on 15 March we give up on it, and we issue a credit note for -1210 EUR of which -210 EUR VAT.

- 210 EUR - 210 EUR = 0 EUR to pay at the end of Q1 for this invoice to the government. No problem.

 

 

However if it happens a month later:

 

- on 15 February we issues an invoice for 1210 EUR of which 210 EUR is VAT.

- it does not get paid.

- in April we pay VAT to the government including the 210 EUR VAT for this invoice, we still haven't seen payment of.

- on 15 April we give up, and issue a credit note for -1210 EUR of which -210 EUR VAT.

- the credit note falls in the Q2 accounting period, and reduces the total VAT we have to pay at the end of Q2.

 

So in that case we paid 210 EUR VAT in April on turnover we did not end up receiving, and are missing that amount for all of May and June.

We do are allowed to subtract the 210 EUR again from our next VAT payment to the government in July though, so then we are even again.

[Paul]

That sounds fun. I'm guessing many EU companies simply issue proforma all of the time, to avoid this, even if there is a contract in place. Just speculation on my part, trying to understand how it works in practice, and how important/practical a package level proforma option might be.

[Max]

That sounds fun. I'm guessing many EU companies simply issue proforma all of the time, to avoid this, even if there is a contract in place.

No, receive far more regular invoices, without a pro-forma first.

Problem with pro-forma remains that it lets your customer know that payment is optional, and you are not going to make any attempt to enforce the contract.

[Paul]

No, receive far more regular invoices, without a pro-forma first.

Problem with pro-forma remains that it lets your customer know that payment is optional, and you are not going to make any attempt to enforce the contract.

 

Ok, that makes sense.. that's what I was looking for.

[visualwebworld]

Many interesting questions in this thread, Blesta is new to us but it seem to be a good road for us to go. We have tried to use most of the leading solutions for selling domains, hosting etc. (IT business) but there always been some  disadvantages, they' have all forced us with a lot of double bookkeeping to get things going without compromising the law etc.
The reason we need VAT per product is that in a country like Norway where our business reside, we have different VAT percentages on different products and some products are even free of taxes (books and some consultancy services depending on residence of the client) are good examples.

I also believe that standards of bookkeping in Norway is very similar to the rest of Europe despite the fact Norway isn't a member of the EU.

[Dominick]

Hi,

 

I am not sure to wich system you refer when you talk about 'eu system',

I am Dutch and in the netherlands (part of the EU) we follow what you call the American system.

Invoices, especially the invoice numbering, should be continuous indeed but when an invoice is created it should be paid, 

but when a automatically renewed product wasn't cancelled it should be paid also.

 

When an invoice hasn't been paid because, for example the company cancels the products anyway or a business goes out of business you simply discard the amount on the invoice and book it on a different financial card. 

 

I also like to comment on comment #21

In the Netherlands you only enter a mutation in your financial books when a payment has been made.

For example,

when when you send an invoice on march 20th and the customer pays the invoice on 10th of April the vat of that invoice isn't due in the first quarter, because at that time the customer didn't pay the vat to you yet. The vat has to be paid at the end of the 2nd term.