How To Process An Overpayment In Xero

If you pay someone too much money because you accidentally overpaid an invoice or paid an invoice twice, but you want to allocate the payment to future invoices rather than ask for a refund, here is a step by step on how to process in it Xero ...

Firstly, you need to enter the overpayment in a way it can be allocated against future invoices. When the payment appears on your bank rec, you can choose to create a new 'spend money' transaction either from the find and match area or from the + sign you can see in the top right.

Ensure you make the payment an Overpayment and not a Direct Payment. If you need to account for the VAT at the time of the payment then you can choose prepayment and still allocate it to a future invoice.

When you enter a future invoice for this same supplier, Xero will help you allocate it and you just need to know how much to allocate to the invoices. After you hit approve to confirm the bill you should get a message like this:

Click allocate then you get this:

And you can choose how much of the overpayment you want to allocate to this particular order. It's your choice as to how much.

Alternatively, you can get to the allocate credit screen from an invoice here:

You must do this allocation before you go to the bank and match there as you can't allocate an overpayment to an invoice from the match area.

The same theory applies when customers accidentally pay you twice except you are dealing with receipts and invoices instead of payments and bills.

If this still confuses you and you would like to be taken through the process personally in your own data then maybe one of my handholding session might work for you? I can log in remotely and share your screen through zoom or Microsoft Teams and take you through the process step by step.

Sessions start from just 15 minutes long.


If anything I've written here resonates with you, call me on 01604 420057 and let's see how we can help you.