It may happen at some point that a customer misreads their invoice and accidently overpays. If this happens, you will need to provide a refund.
This article explains what to do if a customer accidentally overpays you for an invoice. Using an example from the start, it guides you through the different steps you need to take to fix this error and ensure your accounts add up after you have issused a refund.
When might an invoice be overpaid?
Usually, if someone has overpaid for something, this is due to human error. Your customer may have simply misread the invoice and transferred more than is necessary. It’s also possible they simply mistyped the amount when completing their online payment.
How do I fix my accounts when a customer has paid too much?
The following details the steps you need to take to fix your accounts if a customer has overpaid an invoice. You need to make sure that at the end of the process:
- the customer has paid the correct amount
- the invoice is marked as paid
- you have issued a refund for the correct amount
- you have documented the refund correctly in your invoicing software.
1 – Confirm that the customer has paid too much
If a customer contacts you with a problem like this, have a look at the invoice in question and check your bank records. Once you’ve double checked an error has occurred, and determined that you owe them money, you can begin to fix it. To explain this process, let’s take the invoice below as an example.
This invoice is for £500, including VAT. However, suppose that this has been misread by your customer, and their have paid you £583.33.
2 – Match the invoice to the overpayment
Even though the invoice is only for £500, and they have transferred £583.33, you still need to match this transaction to the invoice. You can do this in two ways.
- You can open the invoice and select 'Add Payment'. You can then open the account which the payment went into and select which transaction is an overpayment for the invoice. In this case, you have to match the invoice to the transaction of £583.33.
- Alternatively, you can go to the banking tab and find the record of the overpayment. You need to click on the transaction and select that this is a payment for an invoice. You will then see a list of your invoices, and you will need to select which invoice this is for. In this case, you would select invoice 2021-0086 for £500.
Once you have matched the overpayment to the invoice, your invoice’s status will be changed to 'Paid'.
3 – Account for the overpayment
As you have matched the transaction to an invoice that is less than what you received, the status of this transaction will only be showing a ‘partial’ match. Because the customer has overpaid, your account still shows income (£83.33) that has not been accounted for.
You therefore need to record the rest of the money (+£83.33.) as ‘Other income’. Simply click on the transaction that is now marked as ‘partial’ and select ‘More’, then ‘Other Income’. This will then categorise the extra money (i.e., the additional £83.33) that cannot be matched to the invoice.
Once you select ‘Other income’, you can choose how you want to categorise this payment. It’s best to simply leave this category as ‘Other income’, and add a note in the ‘Description’ field explaining that it was an overpayment for an invoice. By including a note of the invoice number here, it will make it easier for you to understand what happened if you’re looking at your account again in the future.
After you have filled out the details for this overpayment, the whole transaction will be marked as matched, telling you that you have now correctly accounted for all of the income.
If you then open your ‘Invoices’ tab and select ‘Other income’, you will see a record of this extra amount. In this tab, you will see a list of all income you have received that is not matched to an invoice.
4 – Create a credit note
After the overpayment has been correctly recorded in Debitoor, you then need to create a credit note to account for the refund to the customer. Rather than creating a credit note that is linked to the invoice, this needs to be a standalone credit note.
It’s important that you create this credit note separately, and do not create it from the initial invoice you sent. The invoice has been paid in full. The refund is a separate transaction and so the credit note also needs to be separate.
To create a standalone credit note, open the invoices tab and select the ‘Credit Note’ list. Then select ‘New Credit Note’. Fill out the credit note template to the amount that was overpaid (in this case £83.33) and include a description that states it is a refund for an overpayment. It’s sensible to again note which invoice was overpaid so the customer understands what the credit note is for.
5 – Match the credit note with the refund
Your standalone credit note will not be matched automatically. You will need to manually match this credit note with your records.
In this case, you initially invoiced for £500, but instead received £583.33. You therefore should have returned £83.33, and this will be recorded as -£83.33 on your bank statement.
To match your credit note with this transaction, there are once again two ways to do this:
- You can open the credit note and click ‘Add Payment’. You then need to find the payment which is the refund you have given, select it, and hit ‘Save’.
- You can go to the banking tab and find the record of the refund you gave. You need to click on the transaction and mark this is a payment for a credit note. In this case it is for credit note: CN-2021-003.
This final step completes the process and means that your standalone credit note has been successfully matched with the refund you provided.
In the banking tab, the refund's status will also be changed to 'Matched' and the credit note details will be shown in the description of this transaction.
Have I accounted for an overpayment correctly?
By following this process, you will be able to account for any overpayments your customers accidentally make, whilst ensuring your records are still correct. At each stage, it is important to check the status of your various documents and records.
At the end of the process, you should have:
- An invoice that is paid in full and marked as 'Paid'
- A credit note that is paid in full and marked as 'Matched'
- A record of the overpayment in 'Other Income'.
Your banking records should show:
- An initial overpayment which is marked as ‘Matched’
- A refund you provided, also marked as ‘Matched’.