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 apply those funds to future invoices, how you bookkeep that will depend on several factors. We’ll break it down below.
My client paid me an intentional deposit
If you provide your client with ongoing services and invoice them on a regular schedule, your client may choose to pay several invoices in advance.
The easiest way to reflect this is by splitting the payment to record it against future invoices. If you’d planned to invoice your client $1000 per month from April to June, for example, but your client has paid you the $3,000 upfront in April, the first step is to make sure you’ve created the three invoices: one for April, May, and June.
When the payment is recorded or imported from your bank connection, split the payment into three and record each split transaction against the related invoice.
My client overpaid me with cash or cheque
You sent your client a $900 invoice and they paid you $1,000 by cash or cheque, or through a payment processor outside Wave. $900 applies to the invoice payment, but you have an additional $100 you need to figure out what to do with.
Let’s take care of the invoice payment first:
Add a $1,000 income transaction to the bank account where you received payment (or locate the income transaction, if you have your bank account connected to import transactions). Split the $1000 income transaction into two: one for $900 and one for $100.
Apply the $900 transaction as payment to the invoice. The invoice is now fully paid and correctly accounted for.
So, what do you do with the $100?
You have three options:
- Refund your client. Simply cut them a cheque, or return the funds any other way you choose. Add an income transaction for the amount you are refunding (-$100, in this example) to keep your bookkeeping and your bank balance correct.
- Apply the money to another open invoice for your customer, if one exists. This is as simple as marking the transaction as an invoice payment against that invoice.
- Hold the funds against a future invoice (a credit for the customer).
Let’s look at how you hold funds against a future invoice.
If it’s the first time you’ve done this, you’ll need to create a liability account to act as a customer deposit/overpayment account.
When you create this account, make sure you uncheck the payment account box.
Now, categorize the remaining $100 to the customer deposit liability you’ve just created. This indicates that you’re holding this money on behalf of a client*, to apply against future services, which is the most accurate way to bookkeep this situation.
*Wave doesn’t know which client you’re holding the money for, so you’ll need to either create a separate liability account for each customer who overpays you, or maintain a separate record in a spreadsheet or notebook that breaks down the total of any overpayments by customer.
As so often happens with bookkeeping, there are multiple ways to get to the same outcome. One simple solution here is when you next invoice your customer, to simply go into the transaction that you split and change the $100 from your customer overpayment account to a payment against the new invoice. You may want to avoid this, however, if the timeframe between the overpayment and the next invoice crosses into the next month, as it will make reconciliation difficult.
My client overpaid me, and I use Wave Payments
In this case, you have a few options:
Within 90 days, you can refund your client the overpayment and Wave Payments will take care of everything. This will also save you any processing fees on the refunded portion of the payment.
If your client doesn’t want a refund and prefers you to put the extra money towards another invoice or future services, you need to reduce the amount of the invoice payment to get everything to balance. Invoice payments for Wave Payments are created automatically by the system, which means they can't be edited or deleted. Instead:
- Navigate to Sales > Products & Services and click Add a product or service.
- Name the product “Invoice Overpayment” and click the Sell this checkbox.
- Once the Sell this checkbox is selected, create a new income account for this item by clicking the "+" button. Choose any income account in the account popup page, and rename it to something like "Invoice Overpayment."
- Navigate to the overpaid invoice and edit it to add the newly created "Invoice Overpayment" product as an item on this invoice. Continuing with the example above, where the overpayment is $100, you'd change the price of this product to $100. This will mark the invoice as paid.
- To apply the payment to a new invoice, create the invoice as normal, then add the newly created "Invoice Overpayment" product as an item on this invoice. Make the price of this product -$100 before saving and sending the new invoice to your client.