The invoice arrived before the goods. Accrue, hold or pay?

A supplier ships on Monday and emails the invoice the same afternoon. The goods land next Thursday, or the week after, or half of them do. Meanwhile the bill is sitting in your approval queue with a due date already running. It's one of the most common situations in accounts payable, and one of the least explained.

The short answer is that you usually hold it. But “usually” hides a few cases where you should pay, and a month-end question that trips up a lot of teams. Here's how to decide.

First: this isn't really an accrual

People often say “accrue it”, but an accrual is for the opposite situation: you have received the goods or service and the invoice hasn't arrived yet. That's often called GRNI, goods received not invoiced. You record the cost in the right month even though there's no bill to enter.

When the invoice comes first, the question is different: do you owe this yet? For goods, that depends on when ownership, and with it the risk, passes to you, and that is set by your contract before any default rule applies:

• In the UK, ownership passes when the parties intend it to. If the contract doesn't say, the Sale of Goods Act 1979 supplies default rules.
• In the US, unless agreed otherwise, title passes when the seller completes physical delivery: at shipment if the seller only has to send the goods, at the destination if it has to deliver them there.
• Incoterms, where your contract uses them, set when risk passes, not ownership.

Australia and New Zealand have their own sale of goods legislation. Whatever the country, read the supplier's terms rather than assuming delivery is the moment.

The three options

1. Hold: enter it, don't approve it

The default. Capture the invoice so it isn't lost, match it to the purchase order, and leave it unapproved until the goods receipt comes in. When the receipt arrives, the invoice is matched against what was actually accepted and approved in the normal way.

In Xero, bills saved as Draft or Awaiting Approval don't post to your accounts (in Xero's terms, journals are only created once a bill is authorised). Only approved bills affect the ledger, so holding keeps both your payables and your stock figures honest.

2. Pay: only when the terms require it

Some suppliers need payment before they ship: a pro forma invoice, a deposit on made-to-order goods, or staged payments on equipment. Paying early makes sense when all of these hold:

• the contract or the supplier's accepted terms require payment before delivery;
• the amount matches what was agreed: the deposit percentage, the stage, or the PO;
• someone with authority has approved paying before the goods arrive.

Then record it as what it is: a prepayment (an asset, money the supplier holds on your behalf), not an expense or stock you don't have yet.

• Pay against the pro forma or deposit request, and record the payment as a supplier prepayment.
• When the goods and the final invoice arrive, allocate the prepayment against the bill.
• A pro forma is not a tax invoice. In the UK, HMRC says it can't be used to reclaim input tax even if it shows every VAT invoice detail. Wait for the proper invoice before claiming VAT or GST.

Xero supports this directly: record the payment as a prepayment through Spend Money, then allocate it to the bill once it's entered.

3. Record it now: when the goods are already yours

Sometimes the goods have left the supplier and, under your terms, they already belong to you. Shipping terms such as FOB shipping point, or Incoterms like EXW and FCA, typically move risk to the buyer at dispatch. If ownership and risk have passed, the goods are yours even while they're on a truck, and at month-end they belong in your books as stock in transit, with the liability to match.

This mostly matters for larger or imported shipments crossing a month-end. Check the contract rather than assuming: Incoterms set when risk passes, while ownership is whatever the contract says.

A goods-in-transit example

Illustrative figures. A £18,000 shipment of stock leaves the supplier on 28 June and arrives on 6 July. The supplier invoices on 28 June. Your month end is 30 June. What goes in June depends on the terms:

In Xero, the first case is the one where waiting for delivery to approve the bill understates June. Either approve the bill in June because the goods are already yours, or record the stock and the liability with a journal and reverse it when the bill is approved. Agree which with your accountant, and do it the same way every month.

A quick decision guide

Watch the due date

Payment terms usually run from the invoice date, not the delivery date. A supplier that invoices on dispatch has quietly shortened your terms by however long shipping takes. On a 30-day term with two weeks in transit, you have about 16 days from delivery to check and pay.

• For regular suppliers, negotiate terms that run from delivery or from receipt of a correct invoice.
• If goods are late, ask the supplier to re-date the invoice or confirm an extended due date in writing.
• Don't let a looming due date become the reason you approve something that hasn't arrived.

Partial deliveries

The trickiest version: the invoice is for 40 units and 32 have arrived. Paying the full amount means you are effectively prepaying 8 units with no paperwork saying so. Better options are to approve only what was received and ask for a credit note, or to hold the whole invoice until the rest lands if the supplier will re-invoice. Whatever you choose, make sure the next invoice can't bill those 8 units a second time.

Month-end: keep the cut-off clean

At month-end, list the invoices that are on hold because the goods haven't arrived. For each one, check two things:

1. Is it ours yet? If the terms say ownership passed at dispatch, the stock and the liability belong in this month even though the bill is unapproved.
2. Did we pay anything? Any deposit or pro forma payment should sit as a prepayment, not as an expense.

Then do the reverse check your auditors will ask about: goods that have arrived with no invoice yet. Those are your real accruals.

A note on VAT and GST

Tax timing follows its own rules. In the UK, issuing a VAT invoice before delivery can create an earlier tax point. In Australia, a business reporting GST on an accruals basis can generally claim the credit in the period it pays or is invoiced, whichever is earlier, and needs the tax invoice before it claims (ATO guidance). In every case you need a valid tax invoice, and a pro forma isn't one. See our guide to VAT and GST errors on supplier invoices for what makes an invoice valid.

How Tenet handles it

With 3-way matching on (the Match plan), an invoice that arrives before its goods receipt is held with the reason written out: no receipt on file for the PO yet, so quantities can't be verified. Nothing is approved or sent to Xero. When the delivery note arrives, upload it and click Re-match documents: Tenet re-checks every open invoice against the POs and goods receipts now on file. If fewer units were accepted than invoiced, the difference is flagged, including units already billed on earlier invoices.