A client overpaid an invoice to tip me, how do I accept this and not direct the overpayment to a credit?

Thanks for dropping by the Community, @allen29.

I'll share the steps on how you can record customer overpayment into a tip. You'll want to create an invoice to record the tip. Here's how:

1. Create an income account to track tips.
2. Create a tip item.
3. Record the extra money as a tip.

For details about the process, refer to this article: Record an invoice overpayment as a tip.

With the above steps, you're able to keep track of your tips accordingly.

When you're ready to match your transactions, you can now link the invoice to the downloaded transactions. Check out this guide: Categorize and match online bank transactions in QuickBooks Online.

Please don't hesitate to reply to this thread anytime if you have other invoice concerns. I'll be here for you. Take care and have a great day ahead.

I went through the process to create a sales category and invoice to match the tip but still being notified to apply the overpayment as a credit. When will this reflect on the account? 

Thanks for the update, @allen29. 

Allow me to add some information on how to record the overpayment as a tip. 

To avoid getting notification of applying the overpayment as credit, let's make sure to receive the payment after creating the invoice. 

Here's how: 

1. Go to the Sales menu, select Invoices.
2. Select New Invoice.
3. Go to the Sales menu, select All Sales.
4. Choose New transaction, then select Invoice.
5. Enter the Customer. In the Products/Services field, select the tip item you created in step 2.
6. Select Save. If your credits are set up to apply automatically, you're done. Otherwise, select Receive Payment
7. Click the credit and then Save and close.

For more details about the process, you can check this article: Record an invoice overpayment as a tip

I'd recommend reconciling your accounts every month. This will help you monitor your income/expenses and detect any possible errors accordingly. You can check out this article for the detailed steps: Reconcile an account in QuickBooks Online.

Also, I'd recommend consulting your accountant to see if they have a different way of recording the tips.

Please don't hesitate to let me know if you have other concerns about managing invoices and payments in QBO. You can drop a comment below, and I'll gladly help.