Deal with small underpayments

This article explains how to deal with receiving a small underpayment on an invoice from a customer in FreeAgent.

The example below is of a scenario where you invoiced a customer for £50 and they paid you £49.99, underpaying you £0.01.

1. Create a new spending category

Navigate to the Settings page and select ‘Accounting Categories’.

'Accounting Categories' highlighted in 'Accounting, Tax and VAT' area of Settings page.

Navigate to the ‘Add New’ drop-down menu and select ‘Admin Expenses category’.

'Admin Expenses category' highlighted on 'Add New' drop down menu.

Enter a name for the new category such as 'Penny roundings' in the ‘Description’ field. Select the relevant Reporting Name from the drop-down menu and ensure the new category is set as ‘Outside of the Scope of VAT’.

'Add new Admin Expenses category' pop up window with 'Outside of the scope of VAT' selected.

2. Explain the invoice payment

Each time you receive a payment from a customer that falls a penny or two short of the amount you've invoiced, you’ll need to split the bank transaction and explain it as follows.

Navigate to the relevant bank transaction and select ‘More options’.

'More options' button highlighted next to bank transaction.

First, select 'Invoice Receipt' for the transaction 'Type' and select the relevant invoice from the drop-down menu.

Change the amount in the 'Value' box to match the amount of the invoice. Using the example above, you'd change the amount of the transaction from £49.99 to £50.

Value set to £50.00 on 'Explain a Transaction' page.

Select ‘Create New Explanation'. This will ensure the invoice shows as fully paid.

3. Explain the unpaid amount

After increasing the value of the transaction, FreeAgent will have created a new transaction for the amount of the underpayment, £0.01 in the example above.

Transactions show as a Money in of 50.00 and a Money out of 0.01.

Select 'Payment' as the transaction 'Type' and select the Penny roundings category you created.

'Penny roundings' selected as category to explain transaction.

Select ‘Explain Transaction’ to complete the process.

Did you find this article useful?