How to Record Accounting Overpayments as an Ecommerce Merchant

In accounting, overpayments will sometimes pop up for various reasons, such as mismatching invoices, payment mistakes, and intentional advances or deposits. Identifying and figuring out how to record overpayments quickly to sort out any confusion is important for an accountant.

What Is an Overpayment?

An overpayment occurs when an invoice (or some other requested payment) is settled over the outstanding amount. For example, when the invoiced amount is $100, but $200 is paid.

It’s important to note that overpayments in accounting are not always mistakes and may be intentional. Sometimes, such an overpayment is made to pay several invoices in advance, especially if the payment is international and carries high fees.

What Should You Do About Overpayments?

The first step is to contact the payer and let them know about the situation if they haven’t contacted you about it already. If this overpayment is intentional, an agreement must be reached on where the excess amount will be applied. However, as a startup business or ecommerce merchant—such as a Shopify seller—it's safe to assume that the overpayment you received for a single low-cost item wasn't intentional.

If the overpayment was accidental, you must consider your options. To record an overpayment, there are usually two paths of action: you can hold the excess amount as credit for a future invoice (if your customer agrees), or process the overpaid amount as an individual refund. You can also combine the overpayment with another refund to eliminate any unnecessary payments or fees.

In all of these situations, be sure to clearly record and communicate the overpayment and subsequent solution during your bookkeeping to eliminate any confusion. If not, you run the risk of raising suspicion about the integrity of your company's accounting methods, which could hurt your standing with the volatile ecommerce customer base and open you up to potential tax issues. As such, it's essential to use the right accounting software.