Record an overpayment

  1. Overview
  2. Reconciling Transactions
  3. Reconcile payments
  4. Record an overpayment

ⓘ This article is for small businesses who use Xero 

Overview
  • Record an overpayment transaction if your customer accidentally pays you too much, or you overpay a supplier.
  • Create an overpayment in your bank account, during bank reconciliation, or from any screen in Xero as a type of spend or receive money transaction.
 ⚠ Warning  
Overpayments don't attract tax and shouldn't be used for intended future work. If the payment relates to work coming up, create a prepayment instead.
Create an overpayment during bank reconciliation

An overpaid bill or invoice

Record and reconcile a payment for the amount of the bill you've received, or invoice you've sent. For the additional payment, create a new spend or receive money transaction as an overpayment.

  1. In the Reconcile tab of your bank account, for the bank statement line you want to reconcile, click Find & Match.

  2. Search for the overpaid bill or invoice, then select the transaction.

  3. Click New Transaction, then select Spend Money or Receive Money, depending on whether the bank statement line is a withdrawal or deposit.

    The Receive Money option in the New Transactions drop down

  4. Next to Spent as or Received as, click Direct payment, then select Overpayment.

    Select Overpayment from the 'Direct Payment' menu when creating a receive or spend money transaction.

  5. Enter the amount that's been overpaid. You can't change the Account or Tax Rate, as these fields are locked.

  6. (Optional) If you've set up tracking for your organisation, select the Tracking Category for the overpayment.

  7. Click Save Transaction, then click Reconcile.

A bill or invoice paid twice

If a bill or invoice is paid twice in error, reconcile the first payment with the bill or invoice entered in Xero, then create an overpayment transaction for the duplicate payment.

  1. Reconcile the first payment with the bill or invoice.

  2. For the duplicate payment’s statement line, in the Create tab for your statement line, click Add details.

  3. Next to Spent as or Received as, click Direct Payment, then select Overpayment.

    Select Overpayment from the 'Direct Payment' menu when creating a receive or spend money transaction.

  4. Enter the duplicate payment amount. You can't change the Account or Tax Rate, as these fields are locked.

  5. (Optional) If you've set up tracking for your organisation, select the Tracking Category for the overpayment.

  6. Click Save Transaction, then click Reconcile.

Fix problems with reconciling an overpayment

In some instances, you might receive an error when you try to reconcile an overpayment that you create while reconciling your bank account. The error message says that overpayments can’t have tax even though the overpayment doesn’t have tax on it, and reconciliation fails.

To resolve this issue, create the overpayment outside of the bank reconciliation screen, then reconcile it using find and match.

See the related known issue article for more information.

ⓘ Tip
You can try out overpayments in the Xero demo company. It has most of the features of an actual Xero organisation so you can explore Xero without entering your own data. 

Create an overpayment from a bill or invoice

Create an overpayment when you apply a payment to a bill or invoice, for an amount that's greater than the amount due.

You can record an overpayment in different currencies, but first you need to have a bank account set up in the same currency as the overpayment.

Payment is in the same currency as the bill or invoice

  1. In the Business menu, select Bills to pay or Invoices.

  2. Find and open the overpaid bill or invoice.

  3. Under Make a payment or Receive a payment, enter the total amount you paid or received, then click Add Payment.

    Click 'Add Payment' on a bill or invoice after you've entered the total payment you've paid or received.

  4. Enter a description for the overpayment.

    Enter the reason for the overpayment in the Description field.

  5. (Optional) If you've set up tracking for your organisation, select the Tracking Category for the overpayment.

  6. Click OK.

  7. Reconcile the statement line in your bank account using find & match.

Payment is in a different currency to the bill or invoice

We'll use the example of a supplier who billed you for 200 NZD, but you paid them 200 USD, which results in an overpayment.

  1. In the Business menu, select Bills to pay or Invoices.

  2. Find and open the overpaid bill or invoice.

  3. Manually calculate the payment made into the currency of the bill or invoice, then enter the Amount Paid in the Make a payment or Receive a payment section.

    In this case, you paid in USD, but the bill is in NZD, so you enter the amount in NZD. The exchange rate at the time is 1 USD = 1.464 NZD, so the Amount Paid is 292.80 NZD.

  4. Enter the payment date in the Date Paid field.

  5. Select the foreign currency bank account in the Paid From or Paid To field.

  6. If the bank account's currency is different to the invoice or bill's currency, Xero shows you an Exchange Rate field. Enter the foreign exchange rate you used to calculate the Amount Paid.

  7. (Optional) Enter a reference to record on the payment transaction.

  8. Click Add Payment, then enter a description for the overpayment.

    Enter the reason for the overpayment in the Description field.

  9. (Optional) If you've set up tracking for your organisation, select the Tracking Category for the overpayment.

  10. Click OK.

  11. Reconcile the statement line in your bank account using find & match.
Create an overpayment from anywhere in Xero

Create an overpayment from any screen in Xero using the create new Image showing the Create New icon. icon in the navigation menu. You might create an overpayment this way if you’re in the middle of entering your conversion balances and you have outstanding overpayments, as at conversion date.

  1. In the navigation menu, click the create new Image showing the Create New icon. icon, then select Spend money or Receive money. The transaction type depends on whether you’re creating an overpayment you’ve paid or received.

  2. Select the bank account the overpayment was paid from or into, then click Next.

  3. Next to Spent as or Received as, click Direct Payment, then select Overpayment.

  4. In the To or From field, enter the name of your supplier or customer, then select the date the overpayment was paid or received. If you’re entering a pre-conversion overpayment, the date must be on or before your conversion date.

  5. (Optional) In the Currency field, select the currency the overpayment was paid or received in.

  6. Enter the details of the overpayment. If tracking is set up, assign a tracking option in the relevant field.

  7. Click Save.

Pre-conversion overpayments

If you’ve created overpayments for a date on or before your conversion date, update your conversion balances to include the total of these overpayments.

  1. In the Accounting menu, click Advanced.
  2. Under Advanced settings, click Conversion balances.
  3. For your accounts receivable balance, update the total to include overpayments you’ve received. Similarly, for your accounts payable balance, update the total to include overpayments you’ve paid.
  4. Click Save.

Updating your conversion balances with your total pre-conversion overpayments ensures your starting point in Xero is correct, taking into account both transactions and balances entered.

To reconcile the pre-conversion overpayments in your Xero bank account, manually mark them as reconciled.

 

Was this article helpful?