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Level 2

Applying a negative amount to an invoice when posting a check

We have a customer who prepays a group of invoices, and then later changes the invoices that applied to that prepayment.  They also have the bad habit of making duplicate payments for invoices, or partially overpaying them.   At some later date, they will discover this problem and then a check will be sent that includes negative amounts for overpaid invoices & corrections to prepayments.

When we are applying payments to invoices in QB Desktop, can we change the amount being applied to an invoice to a negative amount so that an over-payment can be reversed, linking the reversal to the check they are doing it with?

Solved
Best answer 02-21-2019

Best Answers
Highlighted
Level 15

Applying a negative amount to an invoice when posting a check

@Tom_S 

 

This really doesn't exist as a Function: "can we change the amount being applied to an invoice to a negative amount so that an over-payment can be reversed"

 

Let's take your example:

 

First, make sure to know if you are a cash or Accrual Basis entity. That controls how you are allowed to track and manage prepayments and overpayments. The goal is to avoid having Negative AR on hand at any time.

 

"We receive a check for $1,755.86

This check is in payment for 4 invoices at $39,768.00 each, and it reverses incorrect payments on 5 other invoices for a total of $-157,316.14.

This nets to the check amount of $1,755.86."

 

You skipped to the End; let's start with an example. The customer has 5 invoices for $100 each (easy math) but they sent the money based on my quote or a contract and I didn't actually Charge them, yet. You don't use Receive Payment when there are no open charges. Let's change the thought process to showing they Sent Money and that is done using a Prepayment Item, and I like to use Other Charge Type. It links to Liability if you are an accrual basis entity, or a law firm or other Cash Basis entity required to hold this as Liability. Otherwise, you link that to Income; one income account will be used to simply hold the coming and going of prepayment activities. I put this item on a Sales Receipt for the date they paid me. Or, if they Pay because I sent an invoice, but this is Prepayment, not fulfillment of their goods or services, then I put my Prepayment item on that Invoice, not the actual Sales of goods and services at this point in time.

 

Later, I invoice them for the actual Sales. That means 5 invoices for $100 each. I got prepaid, so I need to Make a Credit Memo now, dated the same or later than the Actual Invoices. I list the prepayment item here and Apply it to the invoices.

 

When there is a Holdback on a follow up payment, or a Reversal of a prior amount, which is Common for Medicare Service Providers, then we need to recognize that the prior activity is Done. Nothing Changes that. We have new Activity.

 

Holdbacks means Credit memo. List here the things you Sold, that they want you to Unsell. This is the same as Customer Return or RMA = Not Sold, afterall. Like a Rejected product that arrived broken and no one is sending it back to you; or a Rejected Service, where you lost the argument. You worked for $500 of labor and they Hated what you did. They prepaid, so you applied that. Now you realize they Hated it and are disputing half the charge. That is Credit Memo, listing the reversal of the Sales details or Scope.

 

Now the customer has an AR credit, similar to having a Prepayment credit.

 

Then, you either Refund it, or apply it to the Other Invoice where they Shorted you on this check. Example:

 

Sold $500 of Service A, and that was paid by applying their prepayment

Sold $350 of Service B <== waiting on the check

They pay you $100 and dispute as the Holdback for half of Service A = $250. You credit memo Service A for $250. You Apply it to the invoice for Service B; that leaves $100 Balance remaining. You Receive Payment for that $100.

 

"Over the years of this practice we have many invoices that have incorrect payments applied. Since we can't apply more than the value of the invoice"

 

Exactly; that doesn't exist and isn't even possible. What you have to do is start handling each activity per what it is and the amount it is. An invoice is Paid in full and closed, and never Changed, later. That is affecting all Sales reporting and financial reports. You handle underpayments and overpayments, not by Changing History.

 

"if the customer over pays the invoice we have to apply it to another unpaid invoice."

 

But only you know if that is Your Best Guess, or a possible Error. You have the function right there to make a prepayment Invoice, and apply the additional amount, the Overpayment, as a prepayment to the Prepayment invoice, showing, "I'm not sure yet exactly what this is going to be used for, and I don't want to Guess on behalf of my client. I will park it for now as a prepaid amount and handle it later, when I am informed of the details."

 

"Then, when they discover the error (that may happen 1+ years from now) and want to reverse the over-payment"

 

By handling it right the first time, there is no possibility of error. And if you did apply it to something that made sense, or that they Directed and later modified, that is the RMA process = Reversing the Original Sale, dated Now, a Current Credit Memo. Never change History.

 

"we aren't able to remove it and the problem is just spiraling into a big mess."

 

Just take it one step of reality at a time.

 

 

View solution in original post

4 Comments
Highlighted
QuickBooks Team

Applying a negative amount to an invoice when posting a check

Hey there, Tom_S.

 

You'll be unable to enter a negative amount when receiving invoice payments. You can receive the payment the normal way, then create a credit memo or refund check. You'll just have to verify what's the best workflow that will fit on your situation. This way, we can ensure correct recording in QuickBooks.
 

In your case, you can create a refund check. This is used when there's an overpayment.

 

Here's how to create it:

  1. Click Banking, then choose Write Checks
  2. Fill in the necessary fields.
  3. Choose Accounts Receivable as the account.
  4. Click Save & Close.

Then, link the check to the overpayment. Here's how:

  1. Click Customers, then choose Receive Payments.
  2. Choose the customer, then you'll see the customer's existing credits.
  3. Click Apply credits.
  4. Go to the Credits tab, then choose the check you created.
  5. Click Done, then choose Save & Close.

You can check this article for more information: Record a credit memo or refund in QuickBooks Desktop.


Come back to this thread if you have more questions. We're right here to help you. 

Highlighted
Level 2

Applying a negative amount to an invoice when posting a check

My challenge is that I don't know how to "enter the payment in the usual way."  Let me give a concrete example: 

We receive a check for $1,755.86

This check is in payment for 4 invoices at $39,768.00 each, and it reverses incorrect payments on 5 other invoices for a total of $-157,316.14.  

This nets to the check amount of $1,755.86.

 

This is the habitual way this customer does business and our industry accepts it from them because they are a huge volume customer.  Over the years of this practice we have many invoices that have incorrect payments applied.  Since we can't apply more than the value of the invoice, if the customer over pays the invoice we have to apply it to another unpaid invoice.  Then, when they discover the error (that may happen 1+ years from now) and want to reverse the over-payment, we aren't able to remove it and the problem is just spiraling into a big mess.

 

I'm new to A/R and am looking for a solution I can explain to our accountant.

 

Highlighted
Level 15

Applying a negative amount to an invoice when posting a check

@Tom_S 

 

This really doesn't exist as a Function: "can we change the amount being applied to an invoice to a negative amount so that an over-payment can be reversed"

 

Let's take your example:

 

First, make sure to know if you are a cash or Accrual Basis entity. That controls how you are allowed to track and manage prepayments and overpayments. The goal is to avoid having Negative AR on hand at any time.

 

"We receive a check for $1,755.86

This check is in payment for 4 invoices at $39,768.00 each, and it reverses incorrect payments on 5 other invoices for a total of $-157,316.14.

This nets to the check amount of $1,755.86."

 

You skipped to the End; let's start with an example. The customer has 5 invoices for $100 each (easy math) but they sent the money based on my quote or a contract and I didn't actually Charge them, yet. You don't use Receive Payment when there are no open charges. Let's change the thought process to showing they Sent Money and that is done using a Prepayment Item, and I like to use Other Charge Type. It links to Liability if you are an accrual basis entity, or a law firm or other Cash Basis entity required to hold this as Liability. Otherwise, you link that to Income; one income account will be used to simply hold the coming and going of prepayment activities. I put this item on a Sales Receipt for the date they paid me. Or, if they Pay because I sent an invoice, but this is Prepayment, not fulfillment of their goods or services, then I put my Prepayment item on that Invoice, not the actual Sales of goods and services at this point in time.

 

Later, I invoice them for the actual Sales. That means 5 invoices for $100 each. I got prepaid, so I need to Make a Credit Memo now, dated the same or later than the Actual Invoices. I list the prepayment item here and Apply it to the invoices.

 

When there is a Holdback on a follow up payment, or a Reversal of a prior amount, which is Common for Medicare Service Providers, then we need to recognize that the prior activity is Done. Nothing Changes that. We have new Activity.

 

Holdbacks means Credit memo. List here the things you Sold, that they want you to Unsell. This is the same as Customer Return or RMA = Not Sold, afterall. Like a Rejected product that arrived broken and no one is sending it back to you; or a Rejected Service, where you lost the argument. You worked for $500 of labor and they Hated what you did. They prepaid, so you applied that. Now you realize they Hated it and are disputing half the charge. That is Credit Memo, listing the reversal of the Sales details or Scope.

 

Now the customer has an AR credit, similar to having a Prepayment credit.

 

Then, you either Refund it, or apply it to the Other Invoice where they Shorted you on this check. Example:

 

Sold $500 of Service A, and that was paid by applying their prepayment

Sold $350 of Service B <== waiting on the check

They pay you $100 and dispute as the Holdback for half of Service A = $250. You credit memo Service A for $250. You Apply it to the invoice for Service B; that leaves $100 Balance remaining. You Receive Payment for that $100.

 

"Over the years of this practice we have many invoices that have incorrect payments applied. Since we can't apply more than the value of the invoice"

 

Exactly; that doesn't exist and isn't even possible. What you have to do is start handling each activity per what it is and the amount it is. An invoice is Paid in full and closed, and never Changed, later. That is affecting all Sales reporting and financial reports. You handle underpayments and overpayments, not by Changing History.

 

"if the customer over pays the invoice we have to apply it to another unpaid invoice."

 

But only you know if that is Your Best Guess, or a possible Error. You have the function right there to make a prepayment Invoice, and apply the additional amount, the Overpayment, as a prepayment to the Prepayment invoice, showing, "I'm not sure yet exactly what this is going to be used for, and I don't want to Guess on behalf of my client. I will park it for now as a prepaid amount and handle it later, when I am informed of the details."

 

"Then, when they discover the error (that may happen 1+ years from now) and want to reverse the over-payment"

 

By handling it right the first time, there is no possibility of error. And if you did apply it to something that made sense, or that they Directed and later modified, that is the RMA process = Reversing the Original Sale, dated Now, a Current Credit Memo. Never change History.

 

"we aren't able to remove it and the problem is just spiraling into a big mess."

 

Just take it one step of reality at a time.

 

 

View solution in original post

Highlighted
Level 2

Applying a negative amount to an invoice when posting a check

@qbteachmt 

 

Thank you for the detailed explanation.  It was very helpful to think through and apply your examples to my situation.  I think I can create a plan of action to present to our CFO and begin to make these activities record correctly!

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