How to Handle Short Payments and Deductions in QuickBooks Desktop

Before you start

• Find out why the customer paid short. The remittance, an email or the customer's AP portal usually says: a freight charge, damaged or missing goods, a pricing difference, a promotion, or an early-payment discount.
• Agree with your accountant which accounts deductions go to. Separate accounts for freight, damages and pricing make it possible to report on why customers pay short.
• Check Edit > Preferences > Payments > Company Preferences. With Automatically apply payments on, QuickBooks applies each payment to the oldest open invoice.

Decide what kind of short payment it is

Step 1: Record the short payment and leave the rest open

1. 1Go to Customers > Receive Payments and choose the customer in Received From.
2. 2Enter the amount the customer actually paid, the date, the payment method and the reference number.
3. 3Check the invoice or invoices the payment covers, following the remittance rather than the oldest-first default.
4. 4When QuickBooks shows the underpayment, select Leave as Underpayment.
5. 5Add the reason to the memo, then select Save & Close.

Step 2: Record a deduction you accept

1. 1In Receive Payments, enter the amount paid and check the invoice.
2. 2Select Discounts and Credits and open the Discount tab.
3. 3Enter the deduction in Amount of Discount and choose the Discount Account your accountant set up.
4. 4Select Done, then Save & Close. The invoice is now paid in full.

Step 3: Apply a credit memo for a return or damaged goods

1. 1Go to Customers > Create Credit Memos/Refunds and choose the customer.
2. 2Enter the items returned or damaged and their amounts, then select Save & Close.
3. 3In the Available Credit window, choose Apply to an invoice and pick the invoice, or keep it as an available credit.
4. 4To use a kept credit later, open Receive Payments, select Discounts and Credits, tick the credit on the Credits tab, and select Done.

Our guide to creating and applying credit memos goes into more detail.

Step 4: Write off what you won't collect

1. 1Create an expense account for bad debt if you don't have one, with your accountant's agreement.
2. 2In Receive Payments, choose the customer, enter $0.00 as the amount, and check the invoice.
3. 3Select Discounts and Credits, enter the amount to write off, and choose the bad debt account.
4. 4Select Done, then Save & Close.

Our guide to writing off bad debt has the full steps.

When one check pays several invoices short

• Check every invoice the remittance lists, and change the amount in the payment column for the invoice that was paid short.
• If Automatically apply payments is on, clear the checkmarks QuickBooks added and follow the remittance instead.
• Record each deduction against its own invoice, so the open balance and the reason stay on the right invoice.

Where QuickBooks Desktop leaves the work to you

• Someone has to match each bank line to the invoices it pays and work out how much was deducted from which invoice.
• Unless you record the reason, in the memo or by using a separate account for each deduction type, you can't report on why customers pay short.
• Disputed deductions need follow-up, and a balance left as an underpayment stays open until someone chases it.

How Logistify helps

Logistify matches the payments in your bank file to the open invoices they pay and records clear matches in QuickBooks Desktop as Receive Payments. Short payments and overpayments are never recorded on their own: Logistify suggests how to split the amount, and the payment waits for your team to approve it or choose the invoices. Credit memos aren't handled yet, so a payment that relies on one shows as an overpayment for your team to decide.

For the basics of recording payments and deposits, see how to receive payments and apply them to invoices.