Applying Customer Prepayment Credits in Quickbooks Desktop

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Prepayment

A prepayment is made when a company receives payment from a customer before the company has shipped goods or provided services to that customer.

There are two ways to record a prepayment, in this tutorial I’ll show you how to record it as a negative accounts receivable on the customer’s account in Quickbooks Desktop 2020. It should work the same in older versions as well.

I’ll also show you how to apply that customer prepayment to an invoice.

Applying Prepayments

We’ll start on the home screen and click on Receive Payments.

Selecting Receive Payments from the Quickbooks homepage

Search in RECEIVED FROM to find the customer and enter the payment amount. In this example, I’m applying a $500 payment to “Rachel the Customer.”

Entering a Prepayment amount in Quickbooks Desktop.

There are no invoices being linked to at this time. The customer is making a prepayment that will be applied to future invoices.

In this example, the payment is a check so the check number is entered and I select Check.

Selecting Check as payment type in Quickbooks Desktop

In the lower-left corner it’ll show there’s an overpayment which you can:

  • Leave to be used later
  • Refund to the customer

We’ll be using the payment as a credit so we’ll keep LEAVE THE CREDIT TO BE USED LATER selected. In the lower-right corner click the blue Save & Close button.

Leaving a prepayment as an overpayment in Quickbooks Desktop

A pop-up will appear letting you know that the overpayment will remain on the customer’s account, click OK.

Payment Credit pop-up in Quickbooks Desktop

Finding Prepayments and Overpayments

To find a credit previously applied to a customer’s account click Customers on the home screen.

Selecting Customers from homepage of Quickbooks Desktop

On the left-hand side you’ll see customer balances, any that are negative mean the customer overpaid.

Customer Information showing customer has a negative balance in Quickbooks Desktop

If you have a long customer list it might be easier to find overpayments in the Customer Accounts Receivable report. You can find this in the menu under Reports -> Customers & Receivables -> A/R Aging Summary.

Navigating to the A/R Aging Summary report in the menu in Quickbooks Desktop

In my example you can see Rachel has a negative balance.

A/R Aging Summary report in Quickbooks Desktop

You can also find overpayments in the Customer Balance Summary which can be found in the menu under Reports -> Customers & Receivables -> Customer Balance Summary.

Navigating to the Customer Balance report in Quickbooks Desktop

Again you can see in this report that Rachel has a negative balance.

Customer Balance Summary in Quickbooks Desktop

Apply a Prepayment to an Invoice

To apply a prepayment to an invoice click on Customers in the top menu and select Create Invoices.

Navigating to Create Invoices in Quickbooks Desktop menu

For this example, I find Rachel the Customer and create an invoice for $10 in training and click the blue Save & Close button at the bottom.

Creating an Invoice in Quickbooks Desktop

A pop-up will appear letting you know the customer has available credits. Available credits is Quickbooks lingo for a prepayment or overpayment. Click Yes to apply the prepayment.

Available Credit pop-up in Quickbooks Desktop

Another pop-up will appear showing you the customer’s available credits. In the example, it shows the $500 credit. I enter $10 under AMT. TO USE, the credit balance shows $490 and I click on Done.

Apply Credits pop-up in Quickbooks Desktop

There is another way to apply a credit which you use if you accidentally click No on that first Available Credits pop-up.

In the main menu select Customers -> Receive Payments.

Navigate to Receive Payments in Quickbooks Desktop menu

On the Customer Payment screen select the correct customer. For this example, I created a new invoice for 2 units of $10 training so Rachel the Customer now owes $20.

To apply the prepayment click Discounts And Credits in the main ribbon menu.

Discounts and Credits

The Discounts and Credits pop-up will appear showing the customer’s available credits. I select Rachel’s $490 credit, enter $20 under AMT. TO USE and click Done to apply part of her prepayment to this invoice.

Discounts and Credits pop-up in Quickbooks Desktop

On the Customer Payment screen, the Payment Amount will now be $0.00 since $20 of the prepayment has been applied. You can now click Save & Close.

Customer payment amount is $0.00

Now when I view Rachel’s Balance Summary I see she has a $-470 balance.

Customer Balance summary in Quickbooks Desktop

You can double-click on the amount and see a history of transactions including the $500 credit, the $10 invoice and the $20 invoice.

Customer Balance Detail in Quickbooks Desktop

Now you know how to apply prepayments to your customer’s accounts and how to apply those prepayments to invoices. You can watch the video tutorial below to see me walk through this process step-by-step:

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