QuickBooks Tip: Accurately Applying Customer Payments

Have you ever run a list of open customer invoices only to find it crowded with invoices you know your customers have already paid? Or maybe you’re running an Accounts Receivable Aging report, and – while the grand total accurately reflects accounts you’re waiting to collect, the aging is completely inaccurate. Having these key reports in working order is an essential part of running your business and managing cash flow.

The culprit could be an error in the way your customer payments are being recorded.

Recording payments in QuickBooks

Before we address the most common mistakes, let’s review how to accurately record customer payments in QuickBooks:

1. Go to “Customers” à “Receive Payments”
2. Enter your customer’s name in the “Received From” field to see a listing of all open invoices
3. Enter the payment amount you received and select the invoice that you’d like the payment applied to
4. To apply partial payments, select an invoice from the list and edit the amount to be applied in the “Payment” column

Common deposit mistakes

QuickBooks has a number of built-in tips and pop-up help menus to guide you through this process, but still users can get off track, and that’s when things get messy.

One of the most common mistakes involves trying to enter a customer payment by selecting “Banking” and then “Make Deposit”. Not only will this method not work, it can overstate customer revenue. Because the original invoice was already posted to an income account, you shouldn’t post it there again.  Recording a customer payment should only serve to increase the cash in your bank account and decrease accounts receivable.

Another common mistake involves posting a customer payment to Accounts Receivable without allocating that payment to an invoice.  Even if you designate the correct customer and job, QuickBooks won’t know which invoice to post the payment to, leaving you with open invoices indefinitely and creating credit balances on your aging reports.

Correcting common errors

If your file contains these errors, you can correct it with the following steps:

1. Go back to the deposit window where you incorrectly posted the customer payment. If this deposit has already been reconciled, don’t delete it and start again. Instead, go to “Accounts Receivable,” specify your customer and make sure the deposit appears.
2. From here, return to “Customers “à “Receive Payments” where you’ll see a new credit available (you just created this credit via the deposit entry.)
3. Apply these credits against the specific invoices, which will clear them from the system once and for all.

You should review Accounts Receivable Aging and Open Customer Invoice reports on at least a monthly basis and before year-end. You’ll know you’re applying payments correctly if paid invoices and the associated customer payments are no longer listed on these reports, and only outstanding invoices appear.

If you have questions about applying customer payments or using QuickBooks reporting, contact me or another member of Kaufman Rossin’s QuickBooks ProAdvisors team. Happy collecting!