This guide outlines the differences between prepayments and overpayments while recommending overpayments for better visibility and streamlined reconciliation.

Recommendation: Use Overpayments

Xero offers both prepayment and overpayment features to manage advance payments. While both add credit to a client's account for future use or refund, we recommend using the overpayment feature for the following reasons.

Enhanced Visibility:

• Overpayment appear in the client's summary of invoices owed, aged receivable reports, and outstanding customer statements.
• Overpayments highlight available credit that can be applied to open invoices, reducing the risk of them being overlooked. 

Simplified Reconciliation:

• Unlike prepayments, overpayments do not require reconciling a separate client deposit account, streamlining the process.

Learn how to create an overpayment.

Use Prepayments instead of overpayments

Xero Limitations for Prepayments

• Prepayments do not appear in:
  • Client summaries of the amount owed. 
  • Aged receivable reports (alternative reports are needed). 
  • Outstanding customer statements (only visible in transaction activity statements). 

Integration Limitations

• Prepayments, credit notes, or overpayments recorded in Xero are not visible in LightSpeed or Vital.
• Once applied to an invoice:
  • Fully paid invoices update in LightSpeed and Vital.
  • For partially paid invoices, only LightSpeed reflects the outstanding amount.

If you treat a 'prepayment' as an overpayment, Xero includes the overpayment in the Client summary of the amount of the 'invoices owed to you',  when sending out 'outstanding' customer statements and when reviewing your aged receivable detailed report, highlighting credits that can be applied to open invoices. 

Learn how to create an prepayment.

Reconciling your accounts receivable accounts

Regularly review your Accounts receivable DETAIL report, to:

• Apply available credits to unpaid invoices 
• Maintaining accurate accounts receivalbe (AR).

Note: Failure to apply available credit prompty can lead to confusion, such as:

• Uncertaintiy about which invoices are still outstanding. 
• Unnecessary reminders being sent to clients.