How to Reconcile Customer Overpayments with Xero - YouTube

Hi Team, and welcome. I'm Reuben from Link Academy

and in this session I'm talking about how to reconcile the hopefully rare scenario

of a customer overpaying us or us overpaying a supplier.

There's a special way we need to treat that and I'll show you how.

So the scenario we're talking about here is where a customer has overpaid us

for the invoices we've invoiced to date and we're choosing to keep that overpayment

and apply that to their future invoices.

Good practice would be to contact your customer and let them know

because it's the kind of thing that causes a lot of problem

for everybody, so if you can prevent that in the future that would be ideal.

So find out why they overpaid you whether it was an accident or perhaps some confusion

around your invoice or statement that you sent them.

Find the root cause of that, fix that in the first instance and then

I'll show you how to deal with the overpayment now.

So, under your dashboard click on Reconcile

and we'll go through the scenario the customer saw it scenario

but it's just identical for a supplier overpayment.

Here we have an e-Bank deposit for a thousand dollars and let's imagine after a bit of investigation

we found out that this related to

a particular

customer series of invoices, so I'm gonna click Find and Match

and I know for a fact because I've asked the person who made the payment

that it related to Basket Case here, they pay us a thousand dollars

when they should have paid us 914 dollars fifty five.

That's not really how we work. What we wanna do is we want to close this out

we do wanna apply 914 dollars fifty five, we wanna close that out

and say yes, we'll close that and the remainder though we need to treat as an overpayment okay?

So first I'm taking the invoice it relates to

and then here is the tricky part, so concentrate.

Under New Transactions

we wanna click receive money

and that's going to not only apply the

the 914 dollars fifty five to the open invoice, but you notice that's brought across

a difference 85 dollars forty five, it's creating a new transaction

and under Received as you wanna mark this as an Overpayment.

Like so.

Under From you wanna make sure this is going to Basket Case.

Alright, that's going to make sure it applies to their account

and will be-- reference will be overpayment

on invoice, like so.

Cool. So the account is already selected for us, that's all good; no GST on that

because it's not for a good or a service. Now, a really common question I get is

when do I use a prepayment or when do I use an overpayment?

A prepayment is actually for services, Basket Case has knowingly paid us more

or knowlingly paid us without an invoice because

it's an exchange for some services that they've ask for or product they've asked for.

And overpayment is entirely accidental.

And so our option is to keep that, these 85 dollars forty five

and apply that to future invoices, that's the easiest option.

What we'll cover in a separate session is the scenario where we actually want to make a cash refund,

so we're going to actively go and send that money back to them.

Great, so let's send that to North and we'll click Save Transactions. No GST on that,

because this isn't a good or services, merely a overtransfer of funds

if you think about it like that.

This is what it should look like at the end.

We got two transactions there, which is pretty unique.

We're closing out the open invoice that it relates to and we're creating an overpayment record,

which we'll take a lot at in a moment.

That's just telling me that the dates don't really match, but yours will hopefully won't say that.

Cool. Okay. So if we our Accounts Sales now.

We'll have a look at Awaiting Payments.

What you'll see is that we have an overpayment there, and you see you have a little orange icon

for 85-45 and it appears as a negative value inside our Due column here.

If we open that up,

this is what it would look like.

And if we go to

from here what we can do is we can go an allocate that

to open invoices, so if I go and create a

Basket Case invoice

just quickly for you.

I'll show you how to close up that overpayment, so in this scenario we will have a future invoice

perhaps it's in July.

First of July we have Basket Case

Like so.

And it will be Services, Services as discussed.

Great. One and we'll make it for 400 dollars. Fantastic, so that's your typical invoice.

Nothing special about that.

I'll click approve.

And wait for that to approve.

Great, and this is what should pop up saying 'hey you just invoiced Basket Case 400 dollars

They actually have 85 dollars forty five owing to them that they've overpaid you last

last period and do you want to apply that to this? and I'll say yes I do.

That would be a good idea.

That would be the quickest way and we've have to type in the 85 dollars forty five,

this gives us the opportunity to split it out across multiple invoices if we needed to.

So that's one method, but we can do that manually.

If I just...

we need to remove and redo that overpayment.

No we don't

So just remove that overpayment.

I'll show you how to do that manually. So let's imagine the person doing your invoices didn't

choose to do that then and there, but we decided to do it later.

So if we come into our Sales again

all I do is remove that allocation.

And I'll go to Awaiting Payment

and just like our prepayments we can click on our--

click on our overpayment here

and click Overpayment Options, Allocate Credit, okay?

This is the quickest way to take our overpayment and apply that to something.

So 85 dollars forty five, we're going to take 85 dollars forty five off the amount

they owe on their most current invoice

Fantastic. So, that's how we handle a customer overpayment.

So if you ever receive a customer overpayment you now know how to reconcile those funds

in your bank account.

So, what we did there was we firstly match it up to the invoice that it related to

and then created a new transaction and selected that special little option that said

overpayment, okay? That created a new record for us called overpayment that's set as a negative value

in our accounts receivable.

I then showed you how to take that value and allocate that

to either a new invoice as we're typing it out

or later on manually as we decided to deliberaly allocate that out

to an open invoice of theirs.

Hopefully you found that worthwhile and I'll see you in the next session.