Plain English guides to getting paid.

Guide 1

What are unapplied payments, and why do they matter?

An unapplied payment is money you have received and recorded against a customer, but not matched to the invoice it was meant to pay.

In QuickBooks Online this often happens when a payment is received without ticking the invoice it relates to, or when a bank deposit is matched to the customer rather than to an invoice. The money sits on the customer's account as a credit, while the invoice still shows as open.

In Xero the same problem usually shows up as bank lines left unreconciled, or receipts recorded as an overpayment or prepayment instead of against the invoice.

Why it matters

• Your aged receivables report shows money as owed when it has already been paid.
• You risk chasing customers who have paid you, which damages good relationships.
• Cash flow figures and forecasts are wrong.
• The longer they sit, the harder they are to trace, and year end takes longer.

How to find and fix them

1. Run your aged receivables report and look for customers who have both open invoices and unused credits.
2. Check the remittance advice, payment reference and amount for each credit.
3. Apply the credit to an invoice only when the evidence proves which one it was for.
4. If you cannot prove it, ask the customer rather than guessing.

Guide 2

How to handle a short payment

A short payment is when a customer pays less than the invoice total. It is common and usually has a simple reason, but left alone it turns into a small balance nobody can explain.

1. Record what actually arrived against the invoice, so the invoice shows the correct amount still owed.
2. Find the reason. Check the remittance for a disputed item, a deduction for damaged or missing goods, an early settlement discount, bank charges or a simple keying mistake.
3. Decide what to do with the balance. Chase it, raise a credit note if you agree with the deduction, or write it off if it is below a limit you have set. If you are VAT registered, ask your accountant how write-offs and credit notes affect your VAT.
4. Make a note on the customer record, so the next person to look knows what happened and why.

Guide 3

Overpayments: refund or hold as a credit?

When a customer pays too much, it is tempting to leave the extra on their account. That is fine, as long as everyone agrees.

• Tell the customer as soon as you spot it, with the amount and the invoice it relates to.
• Agree what happens next: a refund, or a credit held against their next invoice.
• Record it properly as a credit or overpayment in QuickBooks or Xero, never as a reduction to another invoice without a note.
• Review credits regularly. Old, unused credits are money that belongs to your customers, and they should be cleared or refunded.