Explain an overpayment to a supplier

This article describes how to explain a bill payment that has been paid out of your bank account to a supplier if the amount was larger than you were due to pay. It also explains the different options you have for processing the bill overpayment.

Once the bank transaction relating to the overpayment has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you’ll need to split the transaction and explain each part using the appropriate ‘Type’ and ‘Category’ as detailed below.

Please note that you’ll need to have level 6 access or above to your FreeAgent account to explain bank transactions.

1. Explain the bill payment

First, you’ll need to split the bank transaction into the correct bill payment amount and the remaining amount, which is the overpayment.

To do this, navigate to the relevant bank transaction, select ‘Bill Payment’ from the ‘Type’ drop-down menu and select the relevant bill from the ‘Bill’ menu.

Select ‘Explain transaction’ to complete the process.

2. Explain the bill overpayment

When you split the bank transaction, FreeAgent will create a new transaction for the remaining balance, which you’ll also need to categorise depending on how you have agreed to process the overpayment with your supplier.

The supplier can either agree to refund the overpayment, or you can allocate it against an outstanding bill or a future bill.

The supplier will refund the overpayment

If you have agreed with the supplier that they’ll refund the overpayment, select the new transaction, choose ‘Other Money Out’ from the ‘Type’ drop-down menu and ‘Payment from Contra Account’ from the ‘Category’ drop-down menu.

You can use the ‘Description’ field to enter which supplier the refund is related to and select ‘Explain transaction’ to complete the process.

When the supplier refunds the overpayment to you and the transaction has been imported into FreeAgent, select ‘Other Money In’ as the transaction ‘Type’ and ‘Receipt into Contra Account’ from the ‘Category’ drop-down menu.

You can use the ‘Description’ field to enter which supplier the refund is related to and select ‘Explain transaction’ to complete the process.

Allocate the overpayment against an outstanding bill

If you have agreed with your supplier that the overpayment will pay off or reduce an amount that you owe on an outstanding bill, select the new transaction (that was created when you split the original transaction), choose ‘Bill Payment’ from the ‘Type’ drop-down menu and select the relevant bill from the ‘Bill’ menu.

Select ‘Explain transaction’ to complete the process. Depending on the value of the overpayment and the outstanding bill balance, this will either fully pay off the bill or reduce the amount that you owe the supplier.

Allocate the overpayment against a future bill

If you have agreed with your supplier that the overpayment will pay off or reduce an amount that you owe on a future bill, select the new transaction (that was created when you split the original transaction), choose ‘Other Money Out’ from the ‘Type’ drop-down menu and ‘Payment from Contra Account’ from the ‘Category’ drop-down menu.

You can use the ‘Description’ field to enter which supplier the refund is related to and select ‘Explain transaction’ to complete the process.

When you add another bill for your supplier, you’ll need to edit the explanation for the overpayment.

To do this, select the transaction that relates to the overpayment, change the transaction ‘Type’ to ‘Bill Payment’ and select the newly added bill from the ‘Bill’ menu.

Select ‘Save changes’ to complete the process. Depending on the value of the overpayment and the outstanding bill balance, this will either fully pay off the bill or reduce the amount that you owe the supplier.

Alternatively, if you want to view the credit before the next bill has been added, you can add a bill for the amount of the overpayment and then a bill credit note.

To do this, first add a bill for the amount of the overpayment and explain the overpayment as a payment for that bill.

Then, create a bill credit note for the amount of the overpayment.

This will mean that the supplier’s contact profile will show the outstanding credit note balance which will be reduced as it is used against future bills.

When you add the supplier’s next bill, you can net off the bill credit note and the bill to reduce the amount that you owe the supplier by the credit note amount.