Debtors overpayments - advice needed

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
Hi,

If debtors make overpayments (i.e make duplicate payments for the same invoice) and they don't use the credit on their account against other outstanding invoices what is the correct procedure?

When I started my job a year ago there was already a miscellaneous account on the sales ledger where any old overpayments are posted, there are various entries on this account dating back to 2000, and the value currently stands at £7000.00.

Any advice would be much appreciated!

Thanks very much

Zoe

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    I've raised cheques for this in the past, using a credit note on the system. Is your system able to do this? If not you could try a cash book journal when the cheque is cleared on your bank statement. Not sure of the ethics of keeping this money so long..... anyone else any ideas?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    I have been working in an Accounts office for a couple of years and I have been mainly dealing with Accounts Payable (Purchase Ledger).
    From my perspective I can see exactly why your Debtors don't want to re-allocate duplicated payments to pay for other outstanding invoices. Re-allocation can cause descrepancies on statements and a lot of confussion, some debtors computers systems may prevent them from agreeing to the re-allocation. Depending on how much money you receive from a particular debtor, I would recommend the suggestion of an internal credit being raised within the Accounts section of your Debtors firm, if you inform the debtor they may request a cheque from your company after the remainder of the balances from all outstanding invoices have been paid. :lol:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Am I being thick here?

    Surely the computer system would not allow the matching off of a credit to a cash receipt, it would be a pretty poor system if it did?

    i.e.

    Invoices: increase the account balance
    Cash: decreases the account balance
    Credits: decrease the account balance

    Wouldnt they have to be invoiced off, affecting profit you havent received?

    I've seen this myself, and they were sitting all over the debtors ledger when I left.

    The word "skullduggery" comes to mind! I wonder what the auditors would say, any auditors in the house?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Skullduggery indeed. No we don't have audits (small co) and the Accountant that produces our final accounts is not very approachable (seems to speak a different language), so don't want to ask him.

    Regarding the idea of just raising a new invoice to clear them - I'm concerned that there may be implications here with the VAT (way over my head! didn't take the optional tax papers in aat and haven't yet started my acca tax paper studying!) and you're right don't think an auditor would think it was such a good idea!

    zoe
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Hi,

    The best way would be to raise a purchase invoice to your suspense, or misposting account. This invoice will then be matched against the duplicate payment. You can then make the refund back to the customer, analysing the payment to the same account as the dummy invoice went to. This will then clear both balances from your system.

    We do this for one of our clients, who do not issue credit notes.

    Cheers

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    The VAT issue depends upon wether you are working a cash or invoice based accounting system. If you are working an invoice based system, you need to put your dummy invoice in as T9 (VAT Exempt), and the same with the repayment.

    If it is cash accounting, you may have paid VAT on the original duplicate receipt. If this is the case, you still follow the same procedure, but fill in a Voluntary Disclosure of Errors Form to reclaim your VAT from HMC&R.

    DJ
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Thanks very much djwhite, think i'll do that!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Gosh, can someone explain this - duplicate payments??????

    Does the debtor keep overpaying??? I have never come across this in all my experience????
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed
    CAZAAT wrote:
    Gosh, can someone explain this - duplicate payments??????

    Does the debtor keep overpaying??? I have never come across this in all my experience????

    Have you not? I thought everyone would have! I certainly haven't worked for a company that didn't have at least one overpayment on their debtors ledger and I have worked for quite a few companies since 1987.

    I even recall working for one company where a naive bought ledger clerk paid a very well known courier company the sums they said were outstanding if they sent him copies of the invoices first so that our account would not be put on stop. When I finally managed to reconcile the account I took great pleasure in informing the company that they could not "put us on stop for not paying our account this month" as we had overpaid them some several thousand pounds over the prior year. Seems they hadn't known how to allocate some of our payments and therefore hadn't. They had still chased us for payment of the invoices though - several times!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Hi,

    We get alot of people overpaying, very often we find its the bigger companies that do it.
    Anyway, we also have many overpayments dating back even as far as 1999 I think. We send out statements showing overpayments every 3 months, so that the customer is aware. Often when they notice, they just ask us to send a cheque. Others ask for credit notes (usually when the overpayment dates so far back they cannnot trace it) which obviously we can't do (as it would double what they are owed!) - I tend to just raise a dummy credit note, which does not appear on our system but gives them something to allocate the repayment to.

    Miny
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Thanks steve,

    Obviously the companies have too much money to notice when they over pay???
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    Actually, the company I worked for that had overpaid thousands of pounds was struggling to make ends meet, up to its overdraft limit and the MD would rush in to the accounts department every month just before payday in a flap cos we didn't have enough funds to cover payroll and everyone had to stop their normal duties to chase money.

    In that company's case, the accounts team were all inexperienced (it was only my second accounts job and I had more knowledge as a job sharer than their full time bought ledger clerk).

    Other reasons for overpayments really come down to human error and software that doesn't check invoice numbers. Sage Line50 is one software package that allows the same invoice number to be used over and over again. If you have an operations clerk that is happy to sign off duplicate invoices (some companies send duplicates with their statements "in case the original has not been received") or if the invoice has been entered on the wrong account in error (two similar names) then the same invoice could easily be entered more than once resulting in overpayments (or payments of invoices to a company that didn't send them).

    A control I put in place at my last company was that invoices being paid must be shown on the supplier's statement as outstanding. This resulted in errors being noticed and corrected and stopped duplicate payments being sent out.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    duplication - no idea how, I only hit enter once but the reply appeared twice on the forum! :shock:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Debtors overpayments - advice needed

    I could be wrong but I thought it was a legal requirement that if a customer had overpaid you were no longer allowed to just leave the amount on account? Not totally sure to be honest but think you have to pay them back - if this is the case I assume there is a time limit on it.

    PLANTY

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