Prepayments, Overpayments and Bad Debts in Xero
Xero has the tools to easily deal with abnormal payments and bad debts.
In an ideal world, all payments that come through your business would be in full and on time. The truth is that this is often not the case, but the good news is that Xero has the tools to easily deal with abnormal payments and bad debts.
Prepayments and overpayments
Navigate to the bank reconciliation screen. You will see a list of transactions that are waiting to be reconciled. Find the one in question and go to the right-hand side box. Click on add details as shown below. Now click on the dropdown box and choose either prepayment or overpayment (depending what it is), then reconcile the transaction as you normally would.
The best way to deal with a bad debt is to use the ‘Add Credit Note’ function on the invoice. To do this, open the invoice that is unpaid and navigate to the right-hand side drop down list. Click on the list and choose ‘Add Credit Note’. Create a credit note for the full amount and code it to the bad debts code. I you later recover part of the bad debt this can be coded to a bad debt recovered code.
Both areas are somewhat technical and although this blog gives a brief overview of how to handle prepayments, overpayments and bad debts, we recommend you to speak to one of our advisors before making any changes.