How To Receive Payments in QuickBooks Online
Tim is a Certified QuickBooks Time (formerly TSheets) Pro, QuickBooks ProAdvisor, and CPA with 25 years of experience. He brings his expertise to Fit Small Business’s accounting content.
Mark has researched and reviewed accounting software at Fit Small Business since 2019 and has developed an extensive knowledge of accounting software features and how unique business needs determine the best accounting software.
This article is part of a larger series on Accounting Software.
In this tutorial, you’ll learn how to receive payments in QuickBooks Online while offsetting the accounts receivable created when you issued an invoice as we cover how to record payments received on outstanding customer invoices. If you’re looking to learn how to receive payment when no invoice has been issued, then head over to our next tutorial, How To Create and Send QuickBooks Online Sales Receipts.
We created this to help you get better at using QuickBooks, our best small business accounting software. To make the most of it, follow along in your own QuickBooks Online account. If you don’t yet have one, you can sign up for a 30-day free trial or get 50% off for three months.
This lesson, which is part of our Free QuickBooks Tutorial Series, includes a tutorial video and illustrated instructions that present the same information.
Step 1: Open the Receive Payment Screen
Click on the + New button at the top of the left menu bar and then select Receive payment in the first column under Customers as shown below.
Navigate to the QuickBooks Online Receive Payment screen
Step 2: Locate the Open Invoice
On the QuickBooks Online Receive Payment screen, you can locate the proper invoice by doing the following:
QuickBooks Online Receive Payment screen
A. Customer: Select the customer from which you received a payment. All of the invoices with an outstanding balance for that customer will then appear in the Outstanding Transactions section.
Tip:
Ensure that you apply the payment to the correct customer invoice. Your customer may get upset if they find their invoice still appears as unpaid.
B. Payment date: Input the date you received the payment.
C. Payment method: Select either Check or Cash as the method of payment. If your customer is paying by credit card, see our tutorial on how to manage credit card sales.
D. Reference no.: Enter the check number or leave it blank if cash was received.
E. Deposit to: If this is the only check to be deposited in your bank account, you can select the appropriate bank account. However, if this check will be combined with other checks or cash, then you should record the payment received in Undeposited Funds. You might wish to peek ahead at how to record bank deposits to understand what happens to customer checks after being posted to Undeposited Funds. For newer QuickBooks Online accounts, the default name for the undeposited funds account is Payments to Deposit.
The reasons behind Undeposited Funds:
Undeposited Funds allows you to group multiple checks and cash into a single deposit in your check register. Without Undeposited Funds, each check received shows as a separate deposit in the check register, making it difficult to trace to the bank statement where checks are combined into a single deposit amount.
F. Amount received: Input the amount of the cash or check received.
G. Invoice detail: The invoice detail will appear automatically for each outstanding invoice once a customer is selected in field A. Multiple invoices will appear if a customer has more than one outstanding invoice.
H. Payment: Enter the portion of the amount received in F to apply to each invoice listed in G. This will usually populate automatically but can be changed as long as the total payments applied match the total amount received.
When you’re satisfied with your payment details, click the green Save and close button to record the transaction.
Step 3: Confirm the Payment Was Correctly Applied
From the left menu bar, hover over Sales and then select Customers:
Navigate to customer listing in QuickBooks Online
Now, locate the customer for which you recorded a payment and click on their name or anywhere on the grayed entry line.
Display customer details in QuickBooks Online
QuickBooks Online will display a list of recent transactions for this customer. We recommend verifying the two items below.
Customer transaction details in QuickBooks Online
A. Invoice marked Paid: Verify that the invoice for which payment was received is now marked as “Paid.”
B. Payment recorded: Verify that the payment recorded is marked as “Closed.” If a payment is marked as “Open,” it hasn’t been applied against an invoice properly.
Why Receiving Payments in QuickBooks Online Is Important
When a customer pays an invoice, it’s important to apply the payment against the invoice as demonstrated in this tutorial. If you record the invoice payment using a sales receipt or bank deposit, the income will be double-counted, and the invoice will still be shown as outstanding.
Record a sales receipt:
If the customer doesn’t have any open invoices, then follow the steps in the sales receipt tutorial to record the payment received as income.
When payments aren’t recorded properly in QuickBooks, the common issues that may arise are:
- Paid invoices remain open: If payments aren’t applied to the right invoice, the invoice shows as outstanding even though the customer has paid it. This will lead to inaccurate collection efforts and could affect your relationship with customers.
- Overstated accounts receivable balances: The amount owed by customers will be inaccurate if payments aren’t correctly applied.
- Overstated sales and income: Payments received and incorrectly recorded as deposits or on sales receipts will be recorded as income. However, income was already recorded when the original invoice was created.
Wrap Up
You’ve just learned how to receive payments in QuickBooks Online. You now know how to record payments received on outstanding customer invoices, and you understand the importance of using the undeposited funds account. The next tutorial in our QuickBooks Online Training Course is How To Create and Send QuickBooks Online Sales Receipts, where you’ll learn how to receive payments from customers when an invoice hasn’t been issued.
