This procedure explains how to record the transactions required when a customer overpays you.
Note that if the payment is an overpayment of a single invoice and there are other outstanding invoices for the customer, then this would not be considered an overpayment in the example being covered here. You should assign the excess payment to one of the other invoices.
Let's assume you have only one invoice outstanding for €200 and your customer pays you €250.
1. Create a Customer Overpayments account in your Chart of Accounts
If it doesn't already exist, create an account in your Chart of Accounts called 'Customer Overpayments' (Account Group - Liabilities, Account type - Current Liabilities, Default VAT - 'No VAT'). Make sure that the "Display in Sales" option is enabled.
2. Enter a payment against the customer invoice
Use the Receive Money option to enter €200 as a Customer Invoice Payment transaction to settle the outstanding invoice. If you are entering the payment from an imported bank statement, then you will need to change the Amount Received from €250 to €200. The reason for this is that you need to enter a separate Receive Money for the €50 over-payment (see the next step).
3. Enter a separate payment for the over-payment value
Use the Receive Money option to enter the €50 over-payment as a General Receipt. In the line item, select the 'Customer Over-payments' account and apply the 'No VAT' VAT Code.
4. Refund or Offset the over-payment
If you are going to make a refund for the over-payment, continue with Step 4a. If you want to apply the overpayment against the next invoice you issue, then go to Step 4b.
4a. Refund the over-payment
Enter a Sales Credit Note transaction for €50. In the line item, select the 'Customer Overpayments' account and apply the 'No VAT' VAT Code. When you pay the customer, use the Spend Money option to enter a Customer Refund.
4b. Offset over-payment against next invoice
Enter a Sales Credit Note transaction for €50. In the line item, select the 'Customer Overpayments' account and apply the 'No VAT' VAT Code. Allocate the Credit Note to the next available invoice.