DEFINITION
Prepayment means the buyer pays all or part of the price before the goods are shipped. It is common in electronics trading, where brokers deal with new partners, prices move quickly and stock is sold to whoever pays first.
It protects the seller completely and puts all the risk on the buyer: if the goods never come, or are not as described, the money has to be recovered. Buyers limit that risk by paying a deposit and the balance against proof of shipment, by using escrow, or by checking the supplier's registration, VAT number and history before the first deal.
A prepayment is booked against a proforma invoice; the final invoice follows when the goods are delivered.
HOW KOLIBRA HELPS
Kolibra records an advance as its own payment milestone on the deal, with the proof of payment attached, and checks the supplier's VAT number against VIES when you add them.