Open your bank reconciliation and look for a customer payment you have skipped over more than once. It is almost always one of two things: one payment covering several invoices, or a payment that does not match the invoice at all. Both take about fifteen seconds once you know where the buttons are.
Watch Reconciling Customer Payments on YouTube, 2 min 15 sec
- One payment covering several invoices reconciles by selecting all of them until the total turns green
- Search the outstanding invoice list by customer name, not just by amount, when one payment covers more than one
- Xero will not let you reconcile a part payment against a full invoice, and it tells you how far out it is
- Split is the answer to an underpayment: allocate what arrived and leave the balance owing
- Neither case needs an adjustment, a write-off or a journal
The two cases that stall a reconciliation
Most customer payments match an invoice and reconcile themselves. The ones that sit in the bank feed for weeks are nearly always one of these two:
- the customer pays two or more invoices in a single transfer
- the customer pays less than the invoice is for
Neither is a problem with your file. Both are handled in the reconciliation screen, and neither needs a journal.
One payment, several invoices
In the video the payment is one transfer of $1,000, and it covers two invoices of $500 each. Those figures are from Xero's demo company, so the numbers are illustrative and the mechanics are exactly the same on a real file.
- Open the bank account and go to reconciliation.
- Find the payment.
- Search the outstanding invoices. You can search by amount, but searching by customer name is usually faster, because it brings up every outstanding invoice for that customer at once.
- Tick the invoices the payment covers.
- When the selected total equals the payment, the amount turns green.
- Reconcile.
Green means the amount you have selected matches the amount in the bank. It does not tell you the payment has been matched to the right invoice, or to the right customer, so check those before you reconcile.
Why search by name. Searching by amount finds an invoice for exactly that figure, and a combined payment matches no single invoice. The customer name brings up the whole outstanding list, which is what you actually need to choose from.
A part payment, using Split
The second case in the video is the same customer paying $200 against an invoice of $250.
Click the invoice and Xero tells you the transaction is $50 out, and it will not let you reconcile. That refusal is the feature working: it is stopping you from marking an invoice paid in full when it is not.
- Click Split.
- Xero allocates the amount that actually arrived, $200, and shows the remaining $50.
- If that is right, accept it.
- The line turns green and reconciles.
The invoice stays open for the balance, which is the honest position: the customer owes $50 and your aged receivables say so. The alternative people reach for, editing the invoice down or writing off the difference, loses the fact that money is still owed.
If either of these is sitting in your feed
Unreconciled customer payments are the most common thing we find in a file that looks tidy, and they are why a profit and loss can disagree with what you know you were paid. If your bank reconciliation is out, everything is out.
We teach this on your own file rather than a demo company, which is the difference that matters when your invoices are the ones in front of you. See Xero training and courses, or Book a Call Today.
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