Meridian Consulting: the €62,400 invoice
Meridian Consulting sold an ERP rollout to Halden Group: a fixed fee of €48,000 over six months plus consulting hours at €120/h invoiced from timesheets. The project product 'Fixed fee' is set to invoice Ordered quantities; the timesheet product uses the Timesheets policy. In January the project manager invoiced a 30% down payment (€14,400) using the standard down payment product and it was posted. By June, 118 billable hours are logged on the project and all milestones are signed off. The June invoice the PM creates shows the full €48,000 on the fixed-fee line, no consulting lines at all, and no trace of the down payment. The customer now holds an invoice for €62,400 and is refusing to pay.
1. The 118 hours are missing from the June invoice. List what must be true for timesheet lines to be invoiced, and how you would diagnose it.
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For timesheets to reach an invoice, all of the following must hold - break any one and the hours silently vanish:
- The project is linked to the sales order, and the project's Timesheet Invoicing setting is 'Invoice on Timesheets'. If it is 'Do not invoice', the hours are recorded but never billable.
- Each timesheet line carries a so_line pointing at the consulting order line. This is set automatically only when the project is linked to the SO and the employee's timesheet product matches the SO line's product; a mismatched or blank product on the employee leaves so_line empty.
- Approval: if timesheet validation is enabled, unapproved entries are not invoiced.
- The invoice period covers the timesheet dates, and the SO line's Delivered quantity is non-zero.
Diagnosis order: open the consulting SO line and read Delivered - if it shows 118, the timesheets are correctly linked and the problem is downstream (invoicing setting or approvals). If it shows 0, the link is broken: check the project's SO link and the employees' timesheet products.
2. How should the €14,400 down payment have been handled so that the June invoice nets to the correct amount, and what conditions must hold?
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A down payment is a real, posted customer invoice using the down payment product; it is not a note. To offset it, the final invoice must be generated with the Deduct Down Payments option in the create-invoice dialog. That adds a negative line at the down payment amount using the down payment product, which reverses the corresponding share of output VAT.
Conditions for it to work:
- The down payment invoice is posted, not draft or cancelled.
- Same customer and same currency as the final invoice.
- It has not already been fully deducted by another invoice.
The deduction is by amount, not by tax line: if the down payment carried a different tax rate than the final invoice, the VAT reversal will not match exactly and you must correct it manually.
Do not issue a manual credit note instead. That leaves the revenue sitting on the down payment account, breaks the SO's invoiced-quantity tracking, and the deduction option will no longer find the down payment.
3. Is 'Ordered quantities' the right policy for a six-month fixed fee? Recommend a structure.
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'Ordered quantities' means the whole fee becomes billable the moment the line is confirmed, regardless of effort or progress. That is why the June invoice is €48,000 in one shot - and it is both a cash-flow shock for the customer and a VAT point you may not want in June.
Recommendation: keep the fixed fee off 'Ordered' as a single line and split it into milestone lines - three lines of €12,000 / €19,200 / €16,800 on the same order, each with Ordered quantities, invoiced as the corresponding milestone is signed off. This gives you:
- proportionality without needing the Delivered policy and a deliverable product;
- no dependence on the deduction mechanism for the fee;
- clean revenue recognition and a VAT event that matches the contractual milestones.
Reserve 'Delivered quantities' for the consulting hours, and treat the down payment as a cash advance only if the customer insists - milestones are operationally simpler than down payments because they never need deducting.