There are quite a few options in Company Settings (Settings or gear icon->Account and Settings). One of those is automatically apply credits.
Some may want this setting while others don’t. It’s best to understand what it will do to your accounting transactions. You will be better equipped to make a good decision and not wrestle with the consequences of a poor one.
Navigate to the gear icon, then select Account and Settings.
As you can see from the screenshot above, we have this toggled to the On position for the sample company.
Okay, now look at the customer balance report shown below.
Our customer, Amy’s Bird Sanctuary, has a balance due of $139. But that is the result of two transactions. There is an invoice due for $239.00. There is also a credit for $100.
These transactions are not applied to each other, meaning the invoice still shows a balance of $239, not $139.
If I view Amy’s activity from her customer register, I can see the overdue invoice and by clicking on the receive payment link, create a payment for the invoice. QBO will default to $139, assuming she is paying her balance. With the setting to automatically apply payments, QBO also applies the $100 credit to the invoice.
As you can see in the screenshot, the payment is for $139. But the total payment on the invoice line of the window shows $239 being applied. That is the payment plus the open $100 credit that was available on the customer’s account.
If this is correct, it’s great. Fewer instructions to QBO. Just click save and your payment transaction is done.
If, however, you are a business that routinely has several open transactions per customer, and at least one of those transactions is a pre-payment for an invoice not yet created, you must watch for this. You may not want the $100 credit applied to this invoice. It may be that it is to be applied to a future invoice.
Now, it’s important to note that those amounts can be edited in the Receive Payment screen. If you don’t want the credit applied to whatever invoice is being paid, you can change it.
At that point though, it is no longer a time saver. Quite the opposite. And there is an increased risk of errors if the payment transaction process is not watched carefully.
So use the setting that most matches how you normally deal with customer credits.
Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
7791 NW 46th St. Suite 109
Doral, FL 33166