Xero Certification Practice Test 2026 - Free Xero Practice Questions and Study Guide

Deposit invoices in Xero are a tool that allows businesses to receive partial payments ahead of the full service or product delivery. This means that when a customer pays a deposit, it can be credited toward a future invoice for the complete service or product once it has been delivered. This process helps in managing cash flow and provides assurance to the vendor that they will receive payment for the services or goods provided.

By utilizing deposit invoices in this way, businesses can ensure that they are compensated for their work upfront, particularly in situations where a project requires substantial investment or resources before completion. The credit towards a future invoice serves to streamline accounting processes and maintain accurate financial records, as it allows businesses to properly apply receipts to the appropriate invoices in their accounting system. Therefore, option B correctly describes how deposit invoices function within Xero.