Final account in Germany explained

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Meer informatie 
  1. Inleiding
  2. What is a final account?
  3. What is a pro forma invoice?
  4. How are previous payments considered?
    1. How is prepaid VAT handled?
  5. What information does a final account need to include?
    1. What must be considered for tax purposes?
    2. What deductions may be applied?
  6. How can software support the final account process?

The final account is a key element in the corporate process and plays a central role in transactions. Businesses often send their clients partial or pro forma invoices to minimize their financial risk. The final settlement is referred to as a final account. Explore what a final account should look like and what information it must contain.

What’s in this article?

  • What is a final account?
  • What is a pro forma invoice?
  • How are previous payments considered?
  • What information does a final account need to include?
  • How can software support the final account process?

What is a final account?

The final account, also referred to as a final settlement or final invoice, is an invoice issued by a business to a client setting out the final financial claim for an agreed and completed service. The final account records and accounts for all transactions between the parties to ensure all financial obligations are met.

Where, within the scope of a project, services are provided over a longer time frame, it may be necessary for interim invoices to be issued for advance payments. The final account then takes into account all payments made and indicates the amount still owed by the client at the end of the project.

The final account is issued when a project or order is complete. It can only be issued once the agreed service has been rendered and accepted by the client.

What is a pro forma invoice?

Pro forma invoices are issued in the same way as normal invoices and must clearly state the value-added tax (VAT) amount. The invoice must be clearly marked as a pro forma invoice. There are two types of pro forma invoices: single and cumulative.

A single pro forma invoice is a partial invoice for services provided within a defined project segment. A cumulative pro forma invoice lists all previously rendered services and the partial payments relating to each. The client and contractor can use a cumulative pro forma invoice to view the current project and payment status.

The final account must include partial payments that have been made. With a cumulative pro forma invoice, the final account may also include unpaid partial amounts, depending on the payment periods set and when the final account is issued.

How are previous payments considered?

Where pro forma or partial invoices have been issued as part of a project, the final account must detail all partial payments made. This requires a precise itemization of the partial services rendered and paid for by the client before the final account is created. The final account must clearly show which partial services and payments are outstanding. The final amount still owed must be clearly stated.

How is prepaid VAT handled?

In accordance with the VAT Act, VAT paid proportionally as part of advance payments or installments must be calculated precisely in the final account and clearly allocated. If this information is incorrect, a business may have to pay VAT on the overall price, even if the VAT has already partly been included within the context of advance payments.

What information does a final account need to include?

The final account is subject to the same formality rules as other invoices. It must contain this information:

  • Full contact information of the invoice issuer and recipient
  • Tax number or VAT identification number
  • Serial invoice number
  • Final account issue date
  • Period of service provision plus type and volume of services rendered, including all partial services
  • Time of provision
  • Amounts due along with VAT, set out separately by applicable tax rate
  • Due date for any amounts outstanding

The final account should also clearly set out the payment terms and accepted payment methods. Where discounts, rebates, or credit notes have been issued during the project, these should also be indicated in the final account. A template final account can be viewed here.

What must be considered for tax purposes?

A final account must be easily understood by clients. The tax office sets high demands on businesses for invoices to be transparent and verifiable. Make sure the overall amount of the final account is calculated correctly and the invoice shows all relevant amounts, including taxes and fees.

Even if the final pro forma invoice accounts for all services rendered, a business still must issue its client a final account listing all previous pro forma invoices. In such cases, the final amount due will be EUR 0.00. For a final account to be correctly prepared for tax purposes, it is important that the previous partial invoices are free of errors and indicate the VAT due.

Note: Where several installments have been paid, you can also include a payments timeline in the final account. This should list all transactions conducted between you and the client along with the date and invoice amount. With a larger project running over a longer period of time, your client can then get a clear overview of the payments it has made. This increases transparency, prevents misunderstandings, and demonstrates exemplary professional standards in your accounting.

What deductions may be applied?

A final account may also include a price deduction—for example, in the event of defects. Businesses may also grant a discount, a reduced price for payment within a stipulated period. The reduction is normally around 2%. The amount may be higher; this is at the discretion of the invoice issuer. The pro forma invoice or final account will then include the note “We will grant a 2% discount if payment is received within 10 days”.

Where pro forma invoices and discounts have been agreed to, the recipient is entitled to apply the discount to the pro forma invoices as well as the final account. The discount must also be indicated on the final account.

How can software support the final account process?

Issuing final accounts can be simplified with software. By using invoicing software, businesses can benefit in the following ways:

  • Automated invoices: Software calculates taxes, rebates, and shipping costs automatically. This minimizes errors and saves time.
  • Invoicing software typically also provides templates for various types of invoices that can be adapted to individual circumstances.
  • Partial invoices are kept in one place, which means the final account can be issued more quickly.
  • Automatic reminders: Software can automatically generate reminders and dunning letters for overdue payments, optimizing cash flow and reducing time spent chasing debts.
  • Invoicing software solutions are generally integrated seamlessly into accounting software.
  • Management of customer data: Invoicing software can store customer history information and enable invoices to be sent to multiple recipients, for example.
  • Currency conversion: Invoicing software can also show amounts in other currencies for international customers.
  • Analysis and reports: Reports on sales, outstanding items, and other figures can be produced at the click of a button, which also helps identify financial trends.

Using invoicing software can increase the efficiency, accuracy, and compliance of your invoicing processes and help ensure adherence to tax rules and accounting standards. Businesses can save themselves a lot of stress when it comes to tax audits. If you would like to ensure that your final accounts comply with the applicable provisions, you should seek advice from a law firm or tax consultancy when issuing and verifying invoices.

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