Payments on Account in Xero

Payments on Account in Xero

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We have a client using Sage, and we're trying to bring him over to Xero. However a lot of his customers pay him on account, and he only invoices later. I haven't worked out the correct way of showing a PA in Xero (we've asked Xero, but can't get a sensible answer from them).

Is Xero actually capable of handling this, or shall I tell him to stick to Sage?

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AshTag86
By Ash_D86
29th Jan 2014 08:41

Payments on Account

The best way to enter payments on account when converting over to Xero is to enter these as Credit Notes. These will then sit under the Awaiting Payments tab until an actual Sales Invoice is entered. Once this event occurs, you will then be able to match the Credit Note off against it. 

When you convert you will need to enter the Accounts Receivable figure into the Conversion Balances settings page. Ordinarily this figure will include these payments on account and should appear as credit entries, overall reducing the Accounts Receivable figure.

Once you have entered the Accounts Receivable figure, you will be asked to enter the Historical Transactions that support the balance. Here you can then enter both the unpaid Sales Invoices along with the relevant payments on account (as Credit Notes). The Credit Notes could be coded to a new Chart of Account code specifically for Conversion Payments on Account. 

Going forward, as and when payments on accounts occur, your client could create a Prepayment Receive Money transaction directly from the Manage Account drop down menu. This works exactly like a Credit Note and will sit under the Contacts ledger until a new Sales Invoice is added, where it is then allocated off.  

I've added two links below to our Help Centre that will provide in depth details about everything described above.

Xero Help Centre:

Enter historical invoices, bills & credit notes

Add a prepayment going into or out of a bank account

Ashley Driver
Training Specialist, Xero
@ashtag_86

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By petersaxton
29th Jan 2014 10:38

Wow

What a lot of messing about!

Why don't Xero do it sensibly?

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By Viv100
29th Jan 2014 12:47

Payments on Accountin Xero

I think it's ridiculous that Xero can't handle payments on account (or EC VAT/ and EC Sales lists), so much so that I have stopped recommending Xero to clients.  Much as I like their bank rec and other aspects of the software, I am considering a complete move away from Xero altogether.

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Kieran Phelan
By KPEM online
29th Jan 2014 14:59

Viv100
Totally agree. Xero are growing too fast IMO and growth for sake of growth is never a good thing. Get the basics right folks at Xero such as the issues noted above, then focus on add-ons, work papers, practice management etc.

Payments on account issue is ridiculous and the EC VAT issues make it non-compliant (unless you go for their crazy workaround of course)

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By MET128
29th Jan 2014 15:02

Xero does handle payments on account...

 

Sorry to disagree with you all but it does handle overpayments.

 

Go to Bank account.

On the Manage account tab select receive money.

where is says "recieved as" select overpayment.

 

Your payment will post on account and you can select it and allocate it to invoices later.

 

Does that help?

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Replying to MET128:
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By Linda Bennett
03rd Oct 2018 12:51

I don't think this is how I expect payments on account to work - surely it should just sit on the Customer's Account?
eg. Joe Bloggs pays me £ 500.00 on account of work that I'll do next week. I want to post the £500.00 to Joe Bloggs account so that if I print a Customer statement it'll show that Joe Bloggs has paid me £500.00 on account.

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Replying to Linda Bennett:
AshTag86
By Ash_D86
03rd Oct 2018 19:56

@Linda - that's how Xero does handle the payment on account. If you process the amount received as a prepayment. When you then go to process the next invoice, Xero will automatically alert you that there is a credit sitting on the customer account. This can then be used to apply to invoice to reduce by the amount paid.

If you use the Contact Transactions - Receivables report, there's an option under Report Settings where you're able to toggle show prepayments.

There's a great Xero Central article on this if you'd like more information: https://central.xero.com/s/article/Apply-a-prepayment-to-a-sales-invoice

Thanks,
Ashley Driver
Partner Curriculum Owner - Xero
@ashtag_86

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Gary Turner
By garyturner
29th Jan 2014 15:32

Update from Xero

I'm pleased to report that the work to extend the VAT handling in Xero to ensure it properly encompasses EC VAT is more or less complete and in final testing for either of the scheduled February or March general updates to Xero.

As MET128 points out, and Ashley before, Xero does handle payments on account, has done for about three years, but if there's a separate consensus that says the way it does so could be improved, we'd be happy to take that on board and give it consideration.

Gary Turner
Managing Director, Xero
@garyturner

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By Viv100
29th Jan 2014 16:01

Payments on Account erm, smoothly

I meant, smoothly handling "payments on account" as part of the bank reconciliation.

As in: just literally being able to allocate a payment to a supplier's (or a customer's, for that matter) account rather than having to faff around separately creating an "overpayment" transaction on the account (and then subsequently having to match the overpayment that you've created when you go back into the bank rec)

 

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By Cloudcounter
29th Jan 2014 18:00

You don't have to

match the overpayment when you create the invoice and you don't have to go back into the bank rec at all.

If you create an overpayment (or prepayment) invoice for a customer, you can choose where that is posted.  It could could to a sales account, or to a balance sheet "Income in advance" account.  You can select the VAT rate on the prepayment, so that VAT is accounted for correctly.  You might raise a few of these if the customer is making monthly payments.

When you raise the "real" invoice, which would be credited to sales, Xero recognises the existence of the prepayment invoice(s) and automatically reverses the postings, crediting the amounts to the real invoice.

No intervention with allocations, no need to even think of the bank reconciliation as none of these transactions impact on it at all.

Same applies to purchases - you create your prepayment invoices for the electricity company, posted to light and heat.  When the quarterly bill comes in, the provisional invoices are reversed and the real invoice is posted to L&H.  Simple.

And far better than Sage where you have to select the tax code for the payment on account, and then can't allocate it to an invoice with a different tax code.  Of course that might have changed as I'm fortunate that I don't have to touch it very often these days.

 

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By Moonbeam
29th Jan 2014 20:49

Could be lots of duplicate invoices?

Cloudcounter - I'm looking to have a go at taking your advice as I have lots of payments without matching invoices. In the case of my Xero client I assume posting an "overpayment" invoice will cause me extra work.

Lets say I'm happy to accept that, how will Xero automatically reverse the "overpayment" invoice? I guess I've got to get hold of the proper invoice and post that first. It may not be exactly the same as the overpayment invoice. There's something I presumably have to do at this point to get rid of the overpayment invoice, as I can't see how Xero would know I'd now posted the "proper" invoice.

Can you help please? I may have got confused.

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By Sandra Silk
29th Jan 2014 21:37

Recording Payment on Account is straightforward

From the bank reconciliation screen choose Find and match, then Create Transaction then Receive Money

You then get options - click on the down arrow next to Direct Payment and you can choose Prepayment or Overpayment.  Choose Overpayment.  

This will post the transaction to Accounts Receivable with no VAT and as soon as the invoice is raised Xero will show that there is a credit on the account and ask if you want to allocate it against the invoice.

Its very quick and straightforward and you can easily see what invoices you are missing.  It works for payments on account to suppliers too.  I've only used it for standard VAT accounting so don't know if it would be as simple with cash accounting.

 

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By carole.businessheads
17th Mar 2015 17:34

Xero - payments on account - VAT cash accounting

Having migrated from Sage to Clear Books and discovered that online system didn't deal with payments on account correctly we moved on to Xero having been advised that Xero did do this correctly.

Now we have converted I am reviewing our VAT Return for the first quarter and find, of course, that the idea of showing payments on account at the time of conversion as credit notes has led to contra entries on the vat return and hence no VAT has been accounted for on these payments on account.

We also had payments on account after conversion which were treated as 'prepayments' and these too have been allocated to the invoice now it has been raised.

As we know, the VAT point is date of invoice or payment whichever is the earlier and Xero ignores this, showing the credit notes and the 'prepayments' as dated the day of the invoice.

While the payments on account are shown as 'prepayments' on the system they do not show on the face of the customer account nor on the Aged Recievable report, so they almost disappear and you have to search for them on a screen (can't remember where just now!).

So, the solution is still not at hand, the whole thing is immensely and unnecessarily complicated.  There is an option called 'over payments' where the payments on account can be accumulated on a nominal account.  Perhaps this is a better option for the short term?

Xero also suffers from not having 'transaction types' in the way that Sage does and all they need to do is call these payments 'Payments on account' and treat them correctly and we'll all be happy.

As an aside, do not rely on the VAT Reconciliation Report.  There is no drill down report for the VAT on Accounts Receivable but we have established that a difference is caused by not accounting for the unallocated prepayments in the ledger.  We are told they are aware and await a correction.

I would not recommend Xero to any client if they cannot avoid payments on account.  

 

 

 

 

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