Thank you for getting back for clarification, Janee.

Let me shed some light on entering a credit for an invoice overpayment in QuickBooks Online (QBO).

You’re correct about going to the +New icon and selecting the Credit Note or Credit Memo. I want to elaborate on these steps further so you can be appropriately guided:

1. Log in to your QuickBooks Online company.
2. Tap the +New icon and select Credit Memo under the Customers column.
3. In the Customer dropdown, choose the name of the customer you are creating this credit.
4. Enter the other necessary information relevant to this transaction. Then, enter the exact amount to refund your client.

If you have set your account preferences to automatically apply the credits to any open invoices under that customer. This will then be used or applied to it. However, if you want to hold this first and apply it to future transactions, you can change your account preference by checking out this article and referring to Step 1: Turn on or turn off Automatically apply credits: Create and apply credit memos or delayed credits in QuickBooks Online.

On the other hand, if you don’t want to create a credit memo for the overpayment. You can make a Bank Deposit. You can follow the steps provided by my colleague, Bryan_M, by depositing the invoice payment. 

Then, scroll to the bottom and go to the Add funds to this deposit section. Enter the credit transaction and select the Accounts Receivable (A/R) for the affected Account. Also, please be guided to enter the credit amount under the Amount column. I also added a snapshot for visual reference:

From then, you can start categorizing your transactions and reconciling them to double-check any discrepancies and ensure your accounts are balanced.

Let me know if there’s anything else you need assistance with creating credits for your customers. The Community always has your back. Have a good one!