How to resolve a customer overpayment in QuickBooks.

What should you do when a customer pays too much?  Determining if a refund check will be issued or whether the funds will be retained on account to be used against other outstanding invoices or future sales to the customer is an important issue regarding the accounts receivable for the customer account.  In this article, we will show you how to handle a customer overpayment:

• Verify a customer overpayment
• Record overpayment
• Refund overpayment or hold funds as credit for customer
• Apply an overpayment credit
• Refund an overpayment credit
• Write off a credit

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Customer overpayments and what you need to do to verify that the customer overpaid:

This is an example of a customer, Red Bloom, who has sent you a check (number 8482) for $168.00 to pay for invoice #1100 in the amount of $110.00 and invoice #1101 in the amount of $58.00.  When you open the Receive Payments Window in QuickBooks and filter on the customer, Red Bloom, there is only one invoice #1101 for $58.00 unpaid.  Their balance due is $58.00. To verify that there isn’t any other invoice open on Red Bloom’s account, do a search using the Find window to verify this overpayment as shown below:

Conduct a search for $110.00.

Under the edit menu, you will click on Find or use the control and F key together to bring up the Find window.
Make sure you are on the Advanced tab at the top.  Click on the Amount filter and click on the middle radio button next to = sign.  Add the $110.00 dollar amount and click on Find button.

There will be a list of all transactions in the amount of $110.00 listed in the Find window.  Under the Name column search for the company name, Red Bloom, for a possible payment (PMT).  It is apparent, that Red Bloom has previously paid the $110.00 under their check number 8438.

Resolve the overpayment.

Call the customer to make them aware that they have overpaid and see whether they would like a refund check; or if they plan on making more purchases in the near future.  It is possible, they want you to hold these funds in their account to be applied to a future invoice.

How to record a customer overpayment in QuickBooks.

In our example above, Red Bloom has only one open invoice.  However, you received a check for more money than Red Bloom owes.  This check still needs to be recorded and have payment applied to the one open invoice.  Regardless of whether the exact amount due is paid or a payment that is for more than what is due is sent, you would record the payment in the Receive Payments window.  Here are the steps you should follow within the Receive Payment window to record the customer overpayment:

1. Choose company name (Red Bloom) in the Received From field drop-down box.
2. In the Payment Amount box, enter the full amount of check even though it is more than the invoices available to be paid.
3. In the Date field, enter the date of payment.
4. Type the check number in the Check# box.
5. In the Memo field, add the check date and the name on the check if it is different from the company name.
6. You will see that the open invoices have been checked to be paid and below in the left corner you will see the Overpayment Section:

a. Leave the credit to use later or
b. Refund the amount to the customer.

Option One – How to refund a customer overpayment in QuickBooks.

You have verified the customer, Red Bloom’s, payment is an overpayment and Red Bloom would like a refund.  The refund can be completed within the same Received Payments window when you are recording the payment. Choose the company name (Red Bloom) in the Received From field drop-down box.

Use the Receive Payment window to handle recording an overpayment as a refund.

Here are the steps you would take to refund a customer overpayment:

1. In the Payment amount box, enter the full amount of the check even though it is more than the invoices available to be paid.
2. In the Date field, enter the date of payment.
3. Add the check number in the Check# box.
4. The Memo field should include check date, name on check if different from company name on the check and a description about the refund.
5. You will see that the open invoices have been checked to be paid and below in the left corner you will see the Overpayment section and choose the radio button: Refund the amount to the customer.
6. Click Save and Close.
7. Issue a Refund pop up window appears.

Everything is pretty much entered for you within this window.  Make sure the Account is correct. Next, enter in the Memo field a reason for the refund.  Last, make sure the to be printed checkbox is checked, so you will be able to print the refund check.

To print a refund check.

When you are ready to print the refund check:

1. Go to File menu hover over Print Forms.
2. On the right (list) click on Checks, this will make the Select Checks to Print window appear. Make sure the Bank account and the first Check number are filled in with the correct bank account and the check number is the same check number on the check you placed in the printer.
3. Click Ok to print the check.

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Option 2 –  Apply the over-payment as a customer credit, “on account”.

Red Bloom has decided he wants the overpayment to be held as a credit to be used against some future purchase.  QuickBooks allows an overpayment to be held as a credit against the customer’s account. Be aware, you would not want to hold the credit indefinitely.  The time frame period for holding customer credits would be a decision made by the owner of your business.  Whether the credits are held for a month, quarter or one year is up to your business and what to do about unused credits when that period is up is discussed below.  Again, this can be done at the same time you are recording the customer’s payment.

Use the Receive Payment window to handle recording an overpayment on credit.

1. In the Payment Amount box, enter the full amount of the check even though it is more than the invoices available to be paid.
2. In the Date field, enter the date of payment.
3. Type the check number in the Check# box.
4. In the Memo field add the check date and the name on check if it is different from the company name.
5. You will see that the open invoices have been checked to be paid.  Below, in the left corner you will see the Overpayment section and choose the radio button: Leave the credit to use later.
6. Click Save and Close.

You should consider mailing the customer a new statement.  To create a customer statement, go under Customer menu and click on Create Statements which will notify the customer of the new credit on his account. Doing so will alert the customer to send instructions with his next check, as to which invoice or invoices to apply the overpayment.  The negative amount in the bottom right corner is the amount of the credit on account.

Create a Customer Statement.

The following picture shows how you would set up your statement to make the customer aware of his credit on account.  You will need to modify a statement to show the words Credit on Account.

Here is a sample statement.  You can send this with an email reminding him of the overpayment and how there is a credit for the overpayment on his customer account.

How to clear overpayment credit in QuickBooks.

When Red Bloom has purchased more product and has a new invoice or invoices on his account, he may have instructed you on which invoice to apply the $110 credit to. Open the invoice, so you can use the overpayment (credit).

1. Open the Receive Payment window.
2. Choose company name (Red Bloom) in the Received From field drop-down box.
3. Click on the invoice for which the payment will be applied.
4. Click on Discount and Credits.
5. Make sure that the credit you want to use is checked.
6. Choose Done to close out of this window.

The above procedure will link the credit (over-payment) to the invoice specified by the customer.

Unused customer credits and what to do with them.

What if several months have passed and the over-payment credit in QuickBooks Accounts Receivable, placed on the customer’s account, is still unused? You could decide to hold the credit a bit longer.  However, it is now 12 months later and it does not look as if the customer who overpaid will be buying any additional products or services from your company.  You can choose to refund the over-payment or write off the credit.  Getting these credits off your books is a good idea to clean up your Accounts Receivable aging report and your Open invoice report.

How to Refund the overpayment credit.

In case the customer has not utilized the credit after several months or even a year later, you can refund his money by entering a journal entry and writing a check.  You should not leave a customer’s credits on the books indefinitely.  The following are steps to create a general journal entry to issue a QuickBooks refund for customer overpayment credit.

1. Open the general journal window by clicking on Make General Journal Entries under the Accountant menu.
2. Under the Account field add Accounts Receivable account and in the Debit field add  $110.00, which is the amount of the credit for Red Bloom.
3. In the Memo field add “refund credit balance”.
4. Customer Name field should have entered Red Bloom.
5. Second line under the Account field should have Customer Refunds Account, (new account type=”income”, go ahead and set this up), in the Credit field add $110.00.
6. Write a check payable to customer name for $110.00 and in the Account field choose Customer Refunds account in the drop-down menu.

How to Write Off the overpayment credit.

If the customer has gone out of business and you can’t issue and send a refund, then you should write off the over-payment credit.  The following steps will walk you through completing a write-off.  It is always best to issue a refund unless the customer has agreed to a write-off.

Write off process.

To start this process, you want to create a Statement Charge of $110.00 to write off the credit for Red Bloom.

In creating a statement charge, you are moving the overpayment from the Customer’s Accounts Receivable account to a general income account called Customer Refunds.

1. Highlight Red Bloom name (or other customer name) in Customer Center.
2. Go to Customer menu.
3. Click on Enter Statement Charges and the customer’s Accounts Receivable window will appear (top of window reads customer name- Accounts Receivable).
4. Enter current date in the Date field.
5. In the Number Type field type “adjust”.
6. In the Item field type “Adjustments or Write Offs”.  You may have the Item Not Found window open due to the name of this field is not already in QuickBooks.  This is a new Item and click Yes set up this item as an Other Charge item type and select an income account from your Chart of Accounts.  You may need to set up a new Income account such as Customer Refunds.
7. In Amt Chrg field add the amount of the credit ($110.00).
8. Description field should have a note explaining the reason for this write-off.
9. Click Record.

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