My client overpaid an invoice. I created a credit note & applied to their next invoice, but how do I categorise the recvd over payment and match that to the credit note?

Welcome to the Community space, @unknown1934. Let me assist you in categorizing the credit note you created for the overpayment you received from your customer in QuickBooks Online.

There are different ways to handle an overpayment in QBO. You're in the right way of recording an overpayment if your customer wants you to keep the extra credit and wants to apply that for the next transactions.

If you have already created a Credit Memo without linking it to an invoice and the invoice isn't in paid status yet, follow the steps I'll provide in example scenario one. Your transaction flow will look like this:

Follow these steps to apply the credit note to the invoice:

Note that the amounts in these steps are examples only for calculation purposes. Here's how I do this:

1. Create an Invoice for $30.00 to your customer.
2. If your customer overpays you, create a Credit Note amounting to the overpayment. Let's say $50. Do not link the $30 invoice to your Credit Note. If you do this, it will automatically pay the invoice in the right amount and the overpayment won't be recorded.
3. After creating the Credit Note, you'll see a -$50 Unapplied Credit in your customer's profile.
4. Apply this by clicking the Receive Payment button to the $30 Invoice transaction.
5. From the Credits section, select the Credit Note you recently created. From the Outstanding Transactions section, ensure that the $30 invoice is selected.
6. In the Payment column, ensure to input the exact invoice amount.
7. Click Save and Close.

For the next example scenario, the invoice is already overpaid using the received payment transaction. This won't involve any Credit Note transactions but the extra credit will show as Unapplied Payments. This can be used by your customers for their next transactions.

Moreover, you can also consider using the multi-currency feature if you have international customers that use different currencies.

Please feel free to leave a reply if you have further concerns about handling overpayments in QuickBooks Online. I'm always here to assist you.