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.
We’ll start on the home screen and click on Receive Payments.
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.”
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.
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.
A pop-up will appear letting you know that the overpayment will remain on the customer’s account, click OK.
Finding Prepayments and Overpayments
To find a credit previously applied to a customer’s account click Customers on the home screen.
On the left-hand side you’ll see customer balances, any that are negative mean the customer overpaid.
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.
In my example you can see Rachel has a negative balance.
You can also find overpayments in the Customer Balance Summary which can be found in the menu under Reports -> Customers & Receivables -> Customer Balance Summary.
Again you can see in this report that Rachel has a negative balance.
Apply a Prepayment to an Invoice
To apply a prepayment to an invoice click on Customers in the top menu and select Create Invoices.
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.
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.
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.
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.
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.
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.
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.
Now when I view Rachel’s Balance Summary I see she has a $-470 balance.
You can double-click on the amount and see a history of transactions including the $500 credit, the $10 invoice and the $20 invoice.
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: