Overpayment Examples

Sometimes clients pay more money then they owe. If a client overpays, you can manage the overpayment by applying the amount to an Overpayment account.

To do this, set up a new Overpayments liability account (in the 200 range in the standard chart of accounts). Do this in Settings > Accounting > Chart of Accounts.

Scenario 1: Invoice is Correct but Client Overpays

The client is invoiced for the correct amount, but pays too much. For example, the invoice is for $100.00 and the client pays $125.00. In this scenario:

1. Enter a cash receipt posting the correct amount ($100.00) to accounts receivable, and the amount overpaid ($25.00) to the Overpayments account (this is a two-line entry). You do not need to enter a project number.
2. Enter a cash disbursement, specifying the Overpayments account number, to refund the client $25.00. You do not need to enter a project number. This step tracks the cash flow in the Cash Journal.

Scenario 2: Invoice is Incorrect and Client Pays the Incorrect Amount

The client is invoiced for too much and pays that higher amount. For example, the client is invoiced and pays $200.00, but the correct amount is $150. In this scenario:

1. Enter a negative invoice for the amount that was overbilled ($50.00), using the original invoice number. This step reduces billings and revenue associated with the client.
2. Enter a cash receipt posting the amount that should have been billed ($150.00) to accounts receivable, and the amount that was overpaid ($50.00) to the Overpayments account. You do not need to enter a project or invoice number.
3. Enter a cash disbursement, specifying the Overpayments account, to refund the client $50.00. This step tracks the cash flow in the Cash Journal.

Scenario 3: Invoice is Correct but Client Overpays

The client is invoiced for the correct amount but pays too much. In this scenario:

1. Enter a cash receipt posting the portion to be refunded to a clearing account (typically this would be a 200 level liability account).
2. Process an Accounts Payable voucher coded to the same liability account. You may need to add the client as a new vendor.
3. Process an Accounts Payable payment to your the client as you normally would when paying vendors.