Process Supplier Overpayments

This procedure explains how to record the transactions required when you overpay a supplier.

Note that if the payment is an overpayment of a single invoice and there are other outstanding invoices for the supplier, then this would not be considered an overpayment in the example being covered. You should assign the excess payment to one of the other invoices.

Let's assume you have only one invoice outstanding for £200 and you pay your supplier £250.

1. Create a Supplier Overpayments account in your Chart of Accounts

If it doesn't already exist, create an account in your Chart of Accounts called 'Supplier Overpayments' (Account Group - Assets, Account type - Current Assets, Default VAT - Out of Scope).

2. Enter a payment against the supplier invoice

Use the Spend Money option to enter £200 as a Supplier Invoice Payment transaction to settle the outstanding invoice. If you are entering the payment from an imported bank statement, then you will need to change the Amount Spent from £250 to £200. The reason for this is that you need to enter a separate Spend Money transaction for the £50 overpayment (see the next step).

3. Enter a separate payment for the overpayment value

Use the Spend Money option to enter the £50 overpayment as a General Payment. In the line item, select the 'Supplier Overpayments' account and apply the 'Out of Scope' VAT Code (or 'No VAT' if not registered).

If you expect to be refunded for the overpayment, continue with 4. If you intend to apply the overpayment against the next invoice you receive, then go to 5.(VAT registered on Accrual Basis or not registered) or 6.(VAT registered on Cash Basis).

4. Receive refund for the overpayment

Enter a Purchase Credit Note transaction for £50. In the line item, select the 'Supplier Overpayments' account and apply the 'Out of Scope' VAT Code (or 'No VAT' if not registered). When you receive payment from the supplier, use the Receive Money option to enter a Supplier Refund.

5. Offset overpayment against next invoice - you are VAT registered on Accrual Basis or not registered

Enter a Purchase Credit Note transaction for £50. Allocate the Credit Note to the next available invoice.

6. Offset overpayment against next invoice - you are VAT registered on Cash Basis
In order for the VAT to be correctly calculated under the Cash Basis, the invoice needs to be 'paid' rather than have a Credit Note allocated against it. Remember that at this stage the full £250 has already been paid out of the bank account (steps 2 & 3). To simulate a payment type transaction and and apply the amount in the 'Supplier Overpayment' account against the invoice in the supplier account, carry out the following 2 transactions:

a. Receive Money - General Receipt for £50
This moves the £50 overpayment out of the 'Supplier Overpayments' account and into the bank account. In the line item, select the 'Supplier Overpayments' account and apply the 'Out of Scope' VAT Code.

b. Spend Money - Supplier  Invoice Payment for £50
Ensure that you enter the same bank account as a. above. Select the appropriate invoice and allocate the payment against it.

Note that the net impact of the above two transactions on the bank account is zero.