In this lesson, you will learn how to receive payments in QuickBooks Online while offsetting the accounts receivable created when you issued an invoice. The next lesson will discuss how to receive a payment when no invoice has been issued. We’ll also discuss the importance of the undeposited funds account to group multiple checks into a single bank deposit.
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This lesson is one in our series of Free QuickBooks Tutorials. The video below and the step-by-step instructions that follow present the same information. The video is from a slightly older version of QuickBooks Online. While the process of receiving payments in QuickBooks Online is essentially unchanged, the layout of the screens is slightly different.
Why Receiving Payments in QuickBooks Online Is Important
When a customer pays an invoice, it is important to apply the payment against the invoice as demonstrated in this lesson. 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. Your customer might become upset if you try to collect on an invoice they have already paid.
Common issues that may arise when payments are not recorded properly in QuickBooks are:
- Paid invoices remain open: If payments are not 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 are not correctly applied.
- Overstated sales (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.
I recommend the following steps to ensure payments are recorded properly:
- Search for open invoices: When a payment is received from a customer, check to see if the customer has any open invoices. If so, then follow the steps in this lesson to record the payment received.
- Record a sales receipt: If the customer does not have any open invoices, then follow the steps in the sales receipt tutorial to record the payment.
How to Receive a Payment in QuickBooks Online
Receiving a payment in QuickBooks Online consists of locating the open invoice and applying the payment. However, it’s an important process, and some details require close attention.
1. Open the QuickBooks Online Receive Payment Screen
To 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:
2. Locate the Open Invoice
It is important to apply the payment received to the correct customer invoice. To locate the proper invoice, choose the customer in the top-right corner of the receive payment screen. All of the invoices with an outstanding balance for that customer will then appear in the Outstanding Transactions section:
A. Customer: Select the customer from which you received a payment.
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 lesson 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, 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.
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 automatically appear 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 equal the total amount received.
When you are satisfied with your payment details, click the green Save and close button to record the transaction.
3. Confirm the Payment Was Correctly Applied
From the left menu bar, hover over Sales and then select Customers:
Now locate the customer for which you recorded a payment and click on their name:
QuickBooks Online now displays a list of recent transactions for this customer. I recommend verifying two items:
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 has not been applied against an invoice properly.
You’ve completed another lesson in our QuickBooks Online Training Course. 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 lesson in our QuickBooks Online Training Course is How to Create & Send QuickBooks Online Sales Receipts, where you will learn to receive payments from customers when an invoice has not been created.