Receiving and applying payments
Applying receipts to the right invoices, handling short payments, overpayments, and deposits, and why unapplied cash is a problem worth clearing.
How-toFor Bookkeepers, Business owners, Firm staff
Applying a payment
A payment is recorded against the customer and then applied to specific invoices. The application is what closes those invoices and keeps aging honest — an unapplied payment reduces the customer's balance in total while leaving every invoice looking overdue.
- 1
Record the payment: customer, date, amount, method, and the account it landed in.
- 2
Apply it across open invoices.
Follow the customer's remittance advice if they sent one. Absent that, apply oldest first.
- 3
Confirm the applied total equals the payment.
Any remainder is unapplied cash and needs a deliberate decision, not a default.
- 4
Post it.
The awkward cases
| Situation | Correct treatment |
|---|---|
| Customer pays less than the invoice | Apply what was paid; the balance stays open. If the shortfall is agreed, issue a credit memo for it rather than writing it off silently. |
| Customer pays more than the invoice | Apply the invoice amount; leave the excess as unapplied credit on their account, to be applied to a future invoice or refunded. |
| One payment covers several invoices | Split the application across them. This is normal. |
| One invoice paid in several instalments | Apply each payment as it arrives. The invoice sits at partial until settled. |
| Payment arrives before the invoice | Record it as unapplied, then apply it once the invoice is issued. Do not hold the cash off the books. |
| Payment net of a deduction you did not agree | Apply the amount received and leave the balance open. Chasing a documented balance is easier than reconstructing a write-off. |
Unapplied cash
Unapplied cash is money you have received but have not attributed to anything. A small amount is normal at any moment; a growing balance means remittances are not being read, and it makes both aging and collections unreliable.
Common questions
The deposit appears in the feed and should be matched to the recorded payment, not coded to revenue. Coding it to revenue records the sale twice and leaves the invoice open.
Void the payment, which reopens the invoice, and record any bank fee as an expense. If you charge the fee on, that is a new invoice line rather than an adjustment to the original.
Record the refund against the unapplied credit so it clears the customer's balance. Do not post it as an expense — it is a return of their money, not a cost of doing business.
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