Accounting for overpayments
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Accounting for overpayments
Have you ever had a client overpay an invoice? In this situation, you have two options: you can refund them the difference, or you can apply that overpayment towards future services. If you want to...
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If the customer had 2 invoices already outstanding and they pay the full amount via one 'Wave' payment would you you account for this using the same method?
@Yorkie That's correct! The article does have the steps outlined for an overpayment on an invoice paid using Payments by Wave.
Here's the situation: non-profit member paid dues for this fiscal year and prepaid for next fiscal year. I split the payment and entered the prepayment in the liability account for overpayments described above. When the next fiscal year arrives, how do I transfer the payment from the prepayment account to the member invoice? I tried it to see how it might work, and the invoice payment screen does not give me the option to transfer payment from the prepayment account. Please explain.
What about a refund for a multi-currency invoice? Client paid in USD and overpaid in USD. Change was given in local currency? How is this recorded?
Hi all! Overpayments can be tricky, let's see if we work through it together
@DeanSurkin Thanks for the example. You should be able to use the liability account to pay for your second invoice, as long as it's the right type of account. To create that liability account, head to: Accounting > Chart of Accounts and under the Liabilities & Credit Cards section, scroll down until you find Customer Prepayments and Customer Credits. That's the account that you'd want to split that first payment to so you can use it to pay the invoice later. From there, head to your invoice and click Record payment. Here you can pay the invoice from the Pre-payment account you created earlier (it should be available from the dropdown of accounts).
@Lisa_Ashby good question! There are a few factors here but the most important is, "What was the conversion/exchange at the time of this sale?" If the sale is in a foreign currency then Wave should provide you with an exchange rate below the subtotal. For instance if I'm a Canadian business selling something to my customer in GBP, Wave would give me an exchange rate of 1GBP = 1.7046525059CAD (today). When the customer pays me in pounds sterling, I should be able to tell what the change due is (in GBP). So if the change was £5, I would multiply that by my exchange rate and get approx. $8.52 CAD due to my customer. After the fact I can also confirm via my reports!
Hope that helps!
@Siobhan_Hitchmough Thanks for your reply. Client owed USD $10 and paid $12USd (example). I give them $4.00 Barbadian dollars (BBD) in change, which is the same exchange rate in xe.com. when I applied the payment, it showed My accounts receivable account with a credit of $4 as my base currency currency is BBD. So I did a journal entry to reduce my local cash on hand by $4 and credit my accounts receivable the same $4.00 which balanced the accounts receivable to $4.00 which is correct and accurately reflected the cash on hand.
However it affects my accounts receivable on the dashboard stating that Invoices payable to you is ($4) in my 1 - 30 days overdue which is incorrect. How do you record the change in cash in hand and balance the accounts receivable without the effect on the dashboard?
Hi there,
When a customer overpays, the amount becomes a a credit to Account Receivable. Why not just allow payment on a future invoice to be manually made with a debit to A/R (as a partial payment) and then send the second invoice? Seems a lot simpler to me and more in line with accounting principles. When the 2 invoices span an accounting period (let's say a tax year), the method you provide above is shifting income from the year in which it should be reported back to a previous year. Just saying...unless I'm missing something.
Hi @Wayne20 thanks for sharing that suggestion, it does consolidate the steps here. That said, with the method above, this allows you to keep a credit of the amount(s) you owe to your customer(s). It also lets you use the credit on future invoices within Wave, since accounts receivable can't make payments (except refunds). So given that, you do need to have the holding count to be able to apply it to future orders
@Lisa_Ashby thanks for the example, let's run through how we'd suggest recording this in Wave:
First, in order for this to work you'll need to have a USD holding account. This is especially helpful if you find folks are paying you in USD often. So, rather than creating an invoice in USD we'd recommend creating the invoice in BBD for the amount (based on the day's exchange). In this example that would be $24.00 BBD.
From there, you'd apply payment from the USD holding account for $12.00 USD. This would note change on your invoice of $4.00 BBD (as in your example). The last step is to create a journal transaction transferring the $4.00 BBD into the USD holding account. Remember that exchange rates fluctuate you may want to look over this article in the help center when you have time.
Thank you both for lending your thoughts to the discussion!
@Siobhan_Hitchmough thanks for the feedback which appears more practical.
@Wayne20 My business (guest house) does not have regular repeat customers. Therefore i would be forever holding that credit for a customer who is never coming back.
The screen you show above is not something I can find on my Wave system and I've no idea where to look. You state I need to create a liability account but don't tell me how to. I cannot see the customer's account in terms of money, simply a list of invoices and no "balance" per se. Therefore, the overpayment that was made has no way of being tracked. I think this is fairly commonpart in accounting and therefore should automatically be accounted for within the package, but it isn't, and that's a real shame. You've made my life that little bit more difficult today because the simple solution is to write it down on a sticky note, but that will inevitably get lost. Why is there no way of tracking this?
Hey @JoanneLamb I just checked on your account, and can confirm that the screen will look different for you; you're still on the previous version of Wave so the above steps won't apply to you (it's for the new version, which you'll be moved to in the coming months). That said, the instructions above should still help you account for this: you'd be creating a custom liability account at Accounting : Chart of Accounts, while the edits/splits to the transactions themselves would take place on the Transactions page. Make sure that you're logged into your Wave account when viewing these guides, because that's what guarantees which pages you're seeing. Hope that helps!
I am sunsetting our QB and moving to Wave. I have 4 accounts in QB that have a credit balance (I owe the customer). I have been playing around with the entire option on creating separate Liability accounts (Customer Prepayments and Customer Credits) for each of the 4 customers. My current balance in Wave reflects the total amounts of credits that are owed to the customers already.
So this is what I have done and I can't seem to get this to work properly. Let's work with customer 1 - Bria - she has a $25 credit.
1 - create a Liability account for customer 1 - Bria
2 - enter in a journal transaction to debit my checking account and credit the newly created Liability account (debit checking account $25 - credit Bria account $25)
3 - I then notice that my total for All Accounts increases by $25 - Is this correct? I feel it should decrease as it is just like I sent the customer a check
4 - I run a GL report and I see under Customer Prepayments and Customer Credits - Bria has a $25 balance
5 - Bria purchases cards totaling $25
6 - I create an invoice for her cards and record a payment of $25 from her Liability account - payment method - other payment account - Credit Bria (created earlier in #1)
7 - the invoice is now marked as paid. udner accounting transactions I see the payment transaction but my all accounts total did not change.
8 - I run another GL report and I see under Customer Prepayments and Customer Credits - Bria has a 'Zero' balance - a credit for $25 (created with journal entry on #2) and a debit of $25 (payment of invoice created on #6)
My may concern is that my total for all accounts increased by $25 when I created the journal entry during step #2 above.
Can anyone please give me some detail information on this entire process - Am I going about this all wrong?
I was told that Wave can not track customer credits and that this will need to be a manual process out of Wave.
The Payments by Wave workaround is ugly, and creates bad accounting. Money ends up in an arbitrary "Invoice Overpayment" account instead of allocated into the proper income accounts originally specified by the invoice. A better process for splitting a single large payment and applying it to multiple invoices would be much appreciated.
Hey @TandemTech - this is something we're looking to improve. I agree that it is less than ideal in it's current form as it requires something of a workaround. I'll be submitting this feedback as well though. Even though we're working on it, submitting feedback helps us set priorities.
I would really love a way to better show over payments or at least in the meantime find a way for them to be included in the customer statement. Currently, the statement only shows the invoice payments. My use of Wave is very basic. We basically have a membership club with monthly dues and occasional expenses. I love the recurring invoice feature, that's one less task I have to complete, however I would like a better way of accounting for over payments. Accounting is not my skill set nor do I have any interest in it but managing this account is an assigned task. Do you all think it would be easier if I sent an annual invoice of $120 for the year and applied payments towards the invoice as they are received? I enjoy wave but I feel like I need a dummy version.
What a disaster. I've never heard of such a complicated and convoluted way to deal with client over payments! If I'm entering a payment received in excess of what is owed, how can this system not know who should be credited for the amount of the overpayment if I've entered it for a client already in the system?!?! This is something that happens regularly and the thought that I have to go through the process of setting up a liability/overpayment account for each client is absolutely ludicrous. If Wave can't get this resolved fairly quickly I may have to choose a different accounting system.
Hey @LonleyMaloney226, thanks for reaching out and giving us a bit of insight into your business! What you suggested would definitely work in Wave, you can invoice your client for their total membership fees, $120, and record partial payments on this invoice for each instalment you receive!
Hey @Frustrated_User, first off I understand the frustration with this workaround, I know that there is a bit of work involved, especially if this is something that happens often in your business. This is something that we are hoping to streamline and improve. When reviewing features a huge part of whether updates are made is based on your feedback, so thank you for taking the time to let us know your thoughts on this.
We will be sure to update this thread as soon as any progress is made
This solution is unhelpful because while you have applied the overpayment to a liability account, you can't apply that overpayment to an invoice. I can transfer that to my cash account, or some other account, but I then can't apply that to a future invoice - that I can see anyway. I have tried and tried and tried.
Hey @GregR. In this case, (if you've added the funds to the liability account within the split) -- you can simply go into the transaction that you had originally split, and change the category of the second amount to the new invoice that has been sent out to the client -- that way the funds have actually been assigned and accounted/allocated to a new invoice in your transactions page.
Comments have been made on this for the last 4 months. Can we get someone to do a complete write up on the best and EASIEST way to handle overpayments?
I am currently using Customer Prepayments and Customer Credits under Liabilities and creating an account for each customer that has a credit balance to be used towards future payments.
The issue that I have here is how do I apply a payment towards an invoice - Sally has a $30 credit and an open invoice for $20. The money from her initial payment that created the credit balance has already been accounted for in my balance. When I created the new invoice, money that I am owed, how do I apply the money that I have already received to pay that invoice without increasing my balance as if I took in money for payment?
At this time I am just keeping a running tally for Sally's credit account under descriptions and then zero out the cost of the invoice and mark it as paid.
There has to be a better way somewhere within this discussion, but we really need someone to do a complete write-up and post it out there for us - something in a way that a NON ACCOUNTANT or BOOKKEEPER like myself can follow and understand.
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Thank you JamieD,
I did have a look at this, and yes it dit work. However one of the the invoices was at the end of one financial year, and the next invoice was at the start of the next financial year. This complicated things a bit as I could not change the date associated with the second invoice payment (it was still associated with the first invoice).
So, yes it did work, and it was in some ways easier than sending it to overpayments, but it was still complicated. I realise that there is probably an accounting reason why you can't assign a payment from a liabilities account, but there must be an easier way
Thanks anyway
I understand the accounting of customer prepayments in a liability account and how to apply those prepayments to future invoices. However, it seems very odd that prepayments don't show up in the Customer Statement. Is there a specific accounting reason for this...or is it just a feature that we're not yet seeing in Wave? If it's the latter, do you have it on the roadmap?
Hey @DebbieS - I think that's something we're definitely working towards. Right now on the customer statement. it only actually shows the credit due to the customer in an instance where the overpayment remains on an individual invoice. For that report, once that overpayment is moved, it no longer detects the credit as tied directly to a customer anymore, but rather floating in the liability account you created. Being able to tether this back so that the report and the account talked to each other would definitely help to streamline the application over overpayments.
Here are the steps for applying the liability or overpayment to the customers future invoice.
This feature is really great! I recently came into a situation where customer sent payment for 2 invoices together. This feature solved my problem of marking the payment. You guys rock!
@DecodeDigital Super excited to hear that this Help Center article and the process was easy enough to follow!
Just throwing on my vote here... would love to have credit show up on the customer statement and be available to apply directly to invoices as they are generated. Thanks for listening and getting feedback from the community! We LOVE Wave and find it superior in SO MANY ways to QB for the needs of our small business. Thanks!
This recommendation with Wave Payments worked for me, but would like to see an option for my client to be able to select several unpaid invoices and make a single bank or card payment online.
I provide support to multiple clients but invoice one company for the work. After issuing my very first invoice to my very first company, I was asked if I would be able to issue separate invoices for each client. I then issued two new invoices for the two clients (to the amount of the first invoice) and received full payment for the new invoices. The initial invoice now appears as "sent" but "unpaid" and the amount earned is twice what it actually is. I tried to say the invoice had been paid (value of $0), but the invoice is still showing as unpaid. Any advice would be greatly appreciated. Thank you!
Hey there @SKH
Welcome to the Wave community
Just thought I'd merge your question into the help center discussion that talks about Accounting for Overpayments on an Invoice. If you want to take a look at this article and check out some other feedback from the community members on here you'll find that there is a lot of good advice!