Settling Overpaid Invoices
An Overpaid invoice is an invoice whose total recorded payments exceed its total value. For example, if an invoice totals 1000 and has payments of 1200 recorded against it, the excess amount is 200.
This guide explains why this status appears, how to find overpaid invoices, how to settle them so they become Paid, the difference between the two settlement options, and the effect of each on the Treasury, Journal Entries, and the client’s balance.
Table of Contents
- Why an Invoice Appears as Overpaid
- Viewing Overpaid Invoices
- Steps to Settle the Invoice
- Settlement Options and the Differences Between Them
- Effect on the System
- Settling a Large Number of Invoices
- Manual Settlement from the Payment
- Error Messages and Solutions
- Avoiding Overpaid Invoices
- Frequently Asked Questions
Why an Invoice Appears as Overpaid
| Cause | Example |
|---|---|
| Editing the invoice after it was paid | An invoice was fully paid with an amount of 1000, and then an item was deleted, a quantity was reduced, or a discount was added, so its total became 800. |
| Recording the payment twice | Recording the same payment transaction twice on the invoice. |
| A payment larger than the remaining amount | Recording a payment of 500 on an invoice with 300 remaining. |
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Note: An invoice is not considered overpaid if the excess is 0.03 or less, and the status is not calculated for draft invoices.
Viewing Overpaid Invoices
- Open Manage Invoices.
- Open the advanced search, and under Payment Status, select Overpaid.
- Click Search; all overpaid invoices appear.
Steps to Settle the Invoice
- Open the overpaid invoice.
- The Overpaid Invoice window appears automatically and displays: the invoice total, the total payments recorded against it, and the excess amount.
- Choose one of the two options: Remove the excess amount (the amount). or Convert the excess amount to client credit to automatically pay new invoices. (Details are in the next part).
- Click Settle.
- The invoice status changes to Paid.
If you close the window without settling, it appears again each time you open the invoice, as long as the invoice remains overpaid.
Settlement Options and the Differences Between Them
| Remove the Excess Amount | Convert the Excess Amount to Client Credit | |
|---|---|---|
| What happens | The excess amount is deducted from the last payment on the invoice. If the payment is smaller than or equal to the excess, it is deleted, and the settlement continues with the next payment. | The excess amount is separated from the invoice and becomes a payment on the client’s account that is not linked to an invoice. The invoice remains paid for its exact value only. |
| Amount in the Treasury or bank | Decreases by the excess amount. | Does not change. |
| Client balance | Does not change. | The client has a credit balance equal to the excess amount, which is automatically used to pay their new invoices. |
| When to choose it | If the excess is a recording error and the client did not actually pay it, such as a duplicate payment or an amount entered by mistake. | If the client actually paid the excess amount and you want to keep it on their account. |
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Note: The settlement starts with the client credit payments recorded on the invoice first, then with the most recent payment by date.
Example
Effect on the System
| Area | Remove the Excess Amount | Convert to Client Credit |
|---|---|---|
| Invoice | Becomes paid. | Becomes paid. |
| Payments | The payment is adjusted or deleted. | The payment is split: one part applies to the invoice, and the other becomes a payment on the client’s account. |
| Journal Entries | The payment’s Journal Entry is adjusted or deleted. | The payment’s Journal Entries are updated according to the split. |
| Treasury | Its balance decreases by the excess amount. | No change. |
| Client Statement | Payments decrease by the overpaid amount. | The overpaid amount appears as a credit balance for the client. |
| Activity Log | The payment edit or deletion is recorded. | — |
Settling Many Invoices
Currently, there is no action to settle all overpaid invoices with one click; you settle each invoice individually. To speed up the process:
- Display the overpaid invoices from Payment Status, as described in Viewing Overpaid Invoices.
- Open the first invoice, select the appropriate option, and click Settle.
- Go back to the list and repeat with the next invoice until you reach the end of the list.
Settling Manually from the Payment
Instead of using the settlement window, you can open the overpayment from the Payments section of the invoice and edit its amount or delete it. This is useful when you want to choose a specific payment yourself instead of the last payment.
Error Messages and Solutions
| Message That Appears | Cause | Solution |
|---|---|---|
| You cannot add, edit, or delete a transaction on this day (date), within a closed period | The invoice date falls within a closed period. | Reopen the closed period or ask the accountant to do so, then settle the invoice. |
| You must select an option | You clicked Settle without selecting either option. | Select one of the two options, then click Settle. |
Avoiding Overpaid Invoices
- To reduce the value of a paid invoice, issue a Credit Note or a Return instead of editing its items.
- Check the remaining amount on the invoice before you Add Payment.
- If the client pays more than the invoice amount, record the excess as a payment to the client’s account instead of adding it to the invoice.
Frequently Asked Questions
How do I settle all overpaid invoices with one click?
Currently, there is no bulk action. Display the overpaid invoices from Payment Status, and settle each invoice from the settlement window that appears when you open it.
Which option should I choose?
If the excess amount is a recording error, choose Remove the excess amount. If the client actually paid it, choose Convert to client balance.
Does the settlement affect the Treasury?
If you remove the excess amount, the Treasury balance decreases by the excess. If you convert it to the client balance, the Treasury balance does not change.
Where can I find the amount converted to the client balance?
It appears in the Client Statement as a credit balance, and it is automatically used to pay the client’s new invoices.
Why doesn’t the settlement window appear?
Because the invoice is a draft, or because the excess is 0.03 or less.
Why does the window appear every time I open the invoice?
Because the invoice is still overpaid, settle it so that it disappears.