QuickBooks Online Tip: Clean up Customer Balances

Customers are the backbone of any business. They are the reason our businesses exist in the first place.

A regular review of the Customer Center in QuickBooks Online keeps accounts tidy and avoids account balance confusion in the future.

To identify customer balances, open the list of Customers, and a summary of unbilled income, overdue and open invoices, and open credits are listed at the top in bright colors, easy to see.

Click on one of those and a related list of customers pulls up.

Running an accounts receivable report can also be helpful. Depending on the amount, if the balance is collectible or needs to be refunded, below are some tips for cleaning up these balances. 

Credits and Refunds

Customers return items.

The customer could change their mind, it is not the product they expected, or unforeseen events can prevent customers from receiving their product.

Depending on a business's return policy, either a Credit Memo or a Refund will be used. 

A Credit Memo is often issued when a customer returns or cancels an order or if they have paid for a product or service and don't want their money back and an account credit to be applied toward a future purchase. 

A Refund is a monetary reimbursement for paid services, products, or overpayments. It is a return of money initially paid by the customer and paid back to their original payment method (i.e., cash, credit card, etc.). 

Processing A Credit Memo

Creating a credit memo affects the customer’s balance and needs to be applied against an invoice. Once a credit memo is created it can be applied to an open invoice by recording a payment.

1. In QuickBooks Online, click on Sales and Customers
   
2. Select the Customer receiving a credit
3. Click on New Transaction in the top right corner and select Credit Memo
4. Enter the correct product/service being credited and enter the quantity and rate of the item(s). 
   
   
5. Totals automatically calculate and the Total Credit is the amount of the credit the customer will have on their account. Save and close or save and send if you are emailing the customer.

 

If the, “automatically apply credits,” option is turned ON in QuickBooks Online, the credit memo will automatically apply to the oldest outstanding balance for that customer. If this is not turned on and the customer is applying it to a purchase, open the credit memo and apply it to the open balance invoice.

Processing A Refund

When processing a refund in QuickBooks Online, it can impact either accounts receivable or the bank balance. There are two main reasons for processing a refund.

To offset an available credit or reimburse the customer for returned products.

The Refund Receipt is quick and can be used without affecting the customer’s balance. To do this:

1. Open a new Refund Receipt (+ New → Refund Receipt).
   
2. Select the customer receiving the refund.
3. Enter the correct product/service being refunded and enter the quantity and rate of the item(s).
   
4. Choose how the funds are being refunded by selecting the correct Payment method. And, choose the account to issue the Refund From.
   ** If your business uses QuickBooks Payments, a credit card refund can be processed directly through QuickBooks Online.
5. Totals automatically calculate and show the amount to be refunded to the customer. Save and close the transaction.

Create a Check or Expense when there is an overpayment on an invoice or sales receipt, a prepayment with no invoice or sales receipt, or when offsetting an open credit. In any of these cases accounts receivable is affected. 

1. Open a new Check (+ New → Check).
   
2. Select the customer receiving the check.
3. Fill out the fields, and select Accounts Receivable for the Account Category.
4. Save the transaction.
5. Link the check to the open credit or unapplied payment.
6. Open the Receive Payment screen (+ New → Receive payment).
7. Fill out the Customer and Date fields and the Memo field if necessary, but leave the other fields (Amount, Payment Method, and Reference Number) blank, and leave the Deposit as is.
8. Put a checkmark on both the Check and the Unapplied Payment.
9. Save the transaction.

What if there is a misapplied payment and it needs to be fixed?

Or maybe a customer made a payment that overpays or underpays an invoice by a small amount and the balance needs to be written off. 

Read this article on misapplied payments and writing off small discrepancies.