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Overpayments and prepayments

Today’s release includes lots of goodies including a more streamlined process for accounting for overpayments and prepayments.

Xero uses the term overpayments to include any money you receive (or pay) that is likely to be refunded. Prepayments refers to money you receive (or pay) for services or goods where an invoice has not yet been raised – for example, deposits.

Watch this video for a quick tour.

Pretty simple, right? Xero is taking care of all the hard stuff to make sure these transactions are accounted for correctly. For more detail be sure to check out Help.

And as if that wasn’t enough we’ve also added:

  • Late claims for VAT returns for all our UK users
  • The ability to change the email address you login to Xero with
  • Automatic address lookups for Australian organisations
  • A warning when entering duplicate AP invoices
  • Search over repeating invoices
  • and more!

Read the release notes for more details.

 

Read more about Business

 

30 comments

Accountancy
23 November 2011 #

sweet! Just got a over payment of $2 from my customer yesterday. Going to test it out!

Jerry

Blair Hughson
23 November 2011 #

Been waiting on this for a while – great stuff Xero. Funny that I had a payment come in overnight which required exactly this feature so was able to use it right away!

Berend de Boer
23 November 2011 #

And now the last thing: invoice discounts. We really need that guys. Doing that manually is just a very, very great pain.

Angela Coppola
23 November 2011 #

Thank you Xero! Been waiting for this, now we can deal with this more efficiently. Love your innovation

Management Nelson Limited
23 November 2011 #

Just had a go at this, but it doesn’t seem to show a customer as being in credit when they have prepaid. The prepayment note appears in the Accounts Receivable ‘Awaiting Payment’ tab, but is not reflected on the customer’s statement. This seems an inaccurate way to represent a customer’s true account status, ie. if they have prepaid $200, surely they are in credit by $200 until we actually sell them something?! For us, the whole point of being able to process an early payment as a prepayment or overpayment is that it is reflected on the customer’s statement. Anyone else have this problem or have I missed a step somewhere?

Linda

Tina Kaye
23 November 2011 #

Yay! Thank you development team!

Kelly Migro
23 November 2011 #

Great work guys! been waiting for this for a while and now I don’t have to explain to clients that they need to be patient overpayments and prepayments are coming! Just tested it out with a client who has a customer who is constantly overpaying and it works a treat.

Gayle Buchanan
23 November 2011 #

just loving it! thanks so much

Elaine Lim
23 November 2011 #

Have been waiting for this since day 1. Thank you Xero.

Catherine Badraun
23 November 2011 #

Management Nelson Ltd has identified the same issue I came across after trying the new Overpayment feature. It appears to not show the reduction in total Accounts Payable due to the Overpayment.We are in “credit” with a Supplier but this is not reflected in the total.
Am I missing something as well?
When I used to enter a minus at least I saw the credit figure in the Accounts Payable reports and Aged Payables – I’m not sure where an Overpayment shows up in any Reports so it can be tracked if no invoice is entered for that specific Supplier for some time? The Overpayment could potentially be “lost” if it can’t be reported on easily.
I’d love to hear from Xero on this.

Adam Shaw
24 November 2011 #

This is not what’s needed. It’s just shifted the problem from the bank rec to the accounts payable/receivable function and in my opinion is worse than what was there before. We now have the added problem of the Accounts Payable/Receivable report not matching the Accounts Payable account in the Balance Sheet which is wrong. Shame ‘cos I was looking forward to it.

Kyle
24 November 2011 #

Will Xero ever support reverse charges? That’s the biggest missing VAT related feature if you ask me. There’s a couple of workarounds but they all mess up the numbers somewhere.

Justin
24 November 2011 #

Hi, a prepayment should not need to have an invoice # attached (an error message comes up). Once the invoice is raised the prepayment can be applied to the invoice, no? Cheers.

Andrew Tokeley
24 November 2011 #

@Linda, @Catherine, @Adam – thanks for the feedback guys.

Overpayments do appear as a credit impacting the Customer balance as expected and should show as a credit on the various Accounts Receivable screens and reports.

For prepayments things are a bit more tricky as we need to design the functionality to handle sales tax implications. As such, we couldn’t journal the tax exclusive amount to Accounts Receivable (or Payable) which would effectively recognise a smaller amount than was actually received (or paid).

So, our solution allows you to select a general ledger account (which provides lots of flexibility in terms of how you wish to report your prepayment e.g. sales, payments in advance, non refundable deposits etc) and then provided for the ability for that prepayment to be accessed via Accounts Receivable despite it not actually being part of the Accounts Receivable balance.

As you’ve seen, this means that prepayments will appear on a customer statement in the period paid but not be treated as an outstanding credit.

We are looking further into how we can have the best of both worlds – correctly accounting for prepayments while providing the option to display on statements as required.

As always – great to get hear your thoughts.

Andy
25 November 2011 #

@Andrew/Xero

It seems from what you’re saying that you’ve designed the prepayments functionality to adhere to the strict letter of the UK VAT requirements, namely that VAT becomes accountable either on creation of an invoice, or on receipt of payment, whichever happens first. Whilst this is indeed the strict requirement, we’ve long been advised by our accountant that for occasional prepayments, which represent a small fraction of our turnover and are received a relatively short period of time prior to the raising of an invoice, then for the sake of simplicity we should simply record the prepayment against the customer in Accounts Receivable, and let the forthcoming invoice generation account for the VAT.

The real issue here is the somewhat irritating and unworkable VAT rule.

I think it would be better if Xero were to simply record the prepayment against the customer in Accounts Receivable, which is what others here are requesting, and allow the user / accountant to manually intervene to provide adherence to the VAT rule (or not, if judged to be justifiable). In other words, by all means display a warning about the VAT rule compliance, but don’t necessarily try to be too clever by providing a confusing, if technically correct, solution. Or at least give us the option of switching the solution off and reverting to non-compliant but logical Accounts Receivable balances.

This is further justified by the fact that really, if businesses are receiving a large number of prepayments, then to ensure compliance with the VAT rules they would be better off creating invoices for upfront deposits, accounting for VAT on the invoices, and allocating “prepayments” as payments against those invoices, then re-crediting those deposit amounts on future “real” invoices (or issuing credit notes once a “real” invoice has been produced). Therefore, again, true prepayments are more often likely to be used for small / occasional / insignificant amounts relative to turnover in which case non compliance with the strict VAT rule could be justified.

In conclusion, I believe you should simply show prepayments against the relevant customer in Accounts Receivable, in full, and not try to be too clever by providing strict adherence to the VAT rule. Unless, of course, you can find a way of providing the adherence completely “behind the scenes”.

Chris
25 November 2011 #

@Linda, @Catherine, @Adam, @Andrew/Xero, @Andy

I think people are looking for the ability to be able to make or receive a “payment on account” and to then be able to allocate against invoices at a later date. This is not prepayment in the true sense of the meaning, hence does not need to comply with the VAT rules.

As Linda correctly points out this should appear as a credit on the accounts payable/receivable statement until allocated and be included in the outstanding balance figure. I think we have all tried to see if the new Prepayment and Overpayment function will meet this requirement and unfortunately it is not working.

If I had made a payment on account to a supplier and it did not appear as a credit item on my statement from them I would be pretty miffed and on the phone to ask them what had happened to my payment. Using the prepayment function and creating an invoice just adds to the confusion.

I am sure that Andys comments about the treatment of VAT on prepayments is correct, however I think the treatment of prepayments and accruals within Xero needs some more work as there is no easy way to handle these, especially when trying to produce accurate monthly management accounts. The ability to be be able to enter recurring and/or reversing journals would go a long way to solving this issue.

Andrew Tokeley
25 November 2011 #

@Andy – yep, I hear you and you’re right, prepayments have been designed to trigger VAT.

Other than accepting the tax implications of prepayments, you do have a couple of other options.

You could still create a prepayment but code it to No VAT. As you and others have noted, this still won’t hit Accounts Receivable but will at least have the desired tax treatment.

Alternatively, you could create an overpayment which is automatically coded to Accounts Receivable and be treated the way you are expecting. Like prepayments, overpayments can be subsequently applied to invoices. The main disadvantage here is that the customer statement will refer to an “overpayment” by name.

Good feedback though and I’ll take this back to the team to see if we can come up with some further options.

Andrew Tokeley
25 November 2011 #

@Justin – the invoice number on the (receivable) prepayment is present in case you need to send a document to your customer that recognises the request for a prepayment. In this case, printing the prepayment will produce an invoice-like document.

Yes, when you apply the prepayment to an invoice, the invoice itself will have its own, independent, number.

Justin
25 November 2011 #

@Andrew if it is applied to the client, will this not just be included on the statement of account? You could then send this to the client? For me the document and ‘invoice’ number is not necessary and creates ambiguity.

Adam Shaw
25 November 2011 #

Having contacted Xero it seems that for some organisations Accounts Receivable was not being updated with the overpayments. They tell me this has been fixed so Accounts Receivable should now be working properly.

Ian
29 November 2011 #

For a much vaunted feature, I was pretty underwhelmed.

I think my situation must be pretty normal, but it seems that Xero just doesn’t work well with it.

I have a client who had a few invoices outstanding, and they overpaid (by $312.54 or something random). My process when I saw this turn up in bank reconciliation was:
– Search for the client, and mark all invoices
– Note down that we’re $312.54 short
– Click on the “New Txn” button (or whatever it is)
– Choose an “overpayment”
– Now type in the amount I remembered before
– Click OK
– Swear because it was supposed to be $312.54 and I put in $354.12
– etc, etc etc.

Surely a “the rest of the money” button wouldn’t be too hard?

The problem also exists with underpayments. I have a client who has lots of invoices of varying amount, and pays it down in chunks. Invariably this will require ticking the first three or four invoices, then splitting the fifth. Once more I need to memorize (or copy and paste, or write down) the amount remaining before proceeding.

A computerized accounting system that relies on memory, writing things down, or copying and pasting is quite clearly broken.

On a side note, this is the first time I’ve had to read the help documents – I was totally lost initially. I knew the feature was there somewhere, but couldn’t find it. I run a web dev company so generally understand things that are set up logically in web pages, and only rarely need to read the manual – so perhaps that’s also a sign that something’s not right. (Of course, there’s also the balance between simplicity and power so it’s not all black and white)

Campbell
29 November 2011 #

I agree with @Ian.
Maybe it is because I first heard about Overpayments and Prepayments in January and my expectations have built the longer I have waited.
The new system is no quicker or easier than how I was doing it previously and if anything is less intuitive.
Maybe it is the type of prepayments I receive but I think this functionality may have been over thought to the extent that it is complicated.
I also had to consult the Help docs to work it out – so while the docs are great it also shows the function doesn’t work very well.
Overall I remain impressed with Xero but this feature missed the mark – guess you can’t hit it out of the park all the time.

Nigel
8 February 2012 #

Just sending a statement to a customer who has paid my last invoice twice, and now has received a new invoice from me. She wants me to clarify what is due – which is what I think a statement should do – but it doesn’t.

I entered the second payment received as a prepayment to use in future. It appears on the statement as both a positive and a negative – so has no effect on the balance due. This means the balance due is wrong, and I can’t send the statement to my customer. Lucky I checked…

Liz
15 March 2012 #

We are accountants and have been recommending Xero to our clients and have waited for the prepayment/overpayment to be launched so that we could use Xero for our own accounting.

We have a large number of customers, the majority of whom pay by monthly standing order and are invoiced only a few times a year.

We are cash accounting for VAT.

At some point those customers that pay by standing order will be in credit with us and have no invoice to allocate a receipt to.

If we post the standing order receipt as a prepayment then the VAT return is correct but the customer statement incorrect (it shows as though we have invoiced when we havent and instead of being in credit with us they have a nil balance).
If we post the standing order receipt as an overpayment then the customer statement is correct but no VAT is accounted for.

Having spent weeks transferring our accounting from another package to Xero we are stuck!

As far as we can see the only solution is to post as overpayments and then manually adjust the VAT returns……..altogether an unsatisfactory solution.

Why can Xero not cope with this when all other software packages seem to be able to?

Ismail Negm
19 April 2012 #

There are few simple things wich need to be fixed and will make everyone life much better :
- Prepayment Transaction Status should show as ”Awaiting Allocation” rather than ”Awaiting Payment”.
- When the prepayment is partially allocated, it show wrong data as the paid amount show the remaining none applied and not the original prepayment value (which is miss leading)
- For unallocated Prepayment it is better to show it in the due column with a negative values rather than showing in the paid column as it is misleading.
- For new customer with one prepayment and no other transactions yet, you cannot print a customer statement (as he has no dues yet and accordingly not showing in the list)

Ben BSG
2 May 2012 #

I’d be interested to know when this feature will be available for currencies other than the organisation’s base currency…any news on that front?

Lets Talk Accounting
14 August 2012 #

Xero doesn’t allow you to add memo/notes while paying/receiving bills/invoices.

That would be useful, especially for part payments.

Camern
25 June 2013 #

Howdy… is there something happening with the API for this? We have xero hooked in to our client management system via a 3rd party app and every month we have to go through this painstaking task of manually syncing data across to check for errors and that create all sorts of corrections in xero to handle the over payments and credits.

Seems a bit ridiculous to have to do this and defeats the purpose of having the automated syncing..

Please update when this will be available. The app developers have been waiting patiently trying to avoid the anger and frustration of clients like myself.

Thanks in advance

Tony Rule
26 June 2013 #

I’ve posted some comments over on the Xero Developer User Voice site for the plans to support Prepayments and Overpayments via the Xero API – see http://xero.uservoice.com/forums/5528-xero-api/suggestions/2409072-api-overpayments-prepayments to be kept up to date on progress

Rodrigo
1 August 2013 #

When Prepayment Option will be available for Multi-Currency bank accounts?

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