Contract Management

Advance payments or prepayments shall be avoided whenever possible. Best practices suggest that goods and services should not be paid for until they have been received in good condition or performed satisfactorily. Still, it may be necessary to make an advance payment (prepayment) to a reputable and well-known vendor in certain cases. A payment of more than 50% of the final contract price before the work is completed is not recommended. Whenever you are faced with such a situation, consider the following:

• Does the supplier have a good reputation?
• Is there a better offer from another supplier?
• Is the supplier an expert in what they do?

As for your policy, here is what I would recommend, including the following:

1.  The specific types of products or services eligible for prepayment. Examples might include:

• • High-cost equipment manufactured to meet functional specifications
  • Books, periodicals, and newspapers, including special order items for trade and professional publications
  • Customized goods/services that cannot be re-sold to others once work has started
  • Facilities/hotel deposits
  • Caterers for food and beverage service for large official functions where the caterer requires a deposit

2. Spending limits on prepayment
3.  Written requests detailing the rationale for the advance payment, payment terms, amounts,etc.
4.  Department heads and the highest financial officer in the department must review and approve advance and prepayment requests.
5. Ensure segregation of duties between the requestor, the approver, and the issuer of funds
6. Effectively monitor prepayment activity and balances to safeguard against misuse or loss of organizational funds.
7. Requesters are responsible for ensuring the actual receipt of goods/services and that the goods/services provided by the supplier meet quality expectations
8. Requesters should collect all supporting documentation to evidence the delivery and acceptance of goods/services in the event of an audit.
9. Upon delivery of the goods/ services, the requester must ensure that the supplier has satisfied the order and that the goods/services meet the contract specifications.
10. Verification includes inspecting goods to ensure they have been delivered timely and in acceptable condition.
11.  Process final payment only when advances have been fully repaid, and all services have been rendered and properly invoiced, documented, and authorized. A detailed review has confirmed the accuracy of the contract's remaining balance.