In order to create transparency in how payments, especially partial payments, are applied to Invoices, a Payment Prioritization system has been implemented. This creates an order in which invoice lines get payment applied to them. The following detail the different levels of prioritization for invoice lines and different situations that may occur when applying payment to Invoices. Please treat this article as a reference for understanding how payment has been applied to your Invoice.
The system prioritizes Invoices and invoice lines in the following order:
When Items are created to sell, System Administrators will add priority to them. This priority will determine which items get payment applied to them first. If a priority is set, it will surmount any non-prioritized Items.
The order that Invoices and invoice lines are created will affect the order of payment. The oldest Invoice will receive payment towards its invoice lines first, followed by the second Invoice, and so on.
The system will prioritize payment of invoice lines by their age. The first invoice line to be created on an Invoice will be paid off first, then the second, and so on. This is applicable when System Admins do not add priority to Items.
Taxes and Shipping:
An invoice line includes tax, any applicable shipping, and the cost of the item. These areas will also get prioritized when applying payment. Taxes will always be paid first, followed by any shipping costs, then the item cost. Enabling Shipping by Total will create one single invoice line for all the shipping costs for an entire Invoice.
Other Payment Application Situations:
Payment Prioritization is applied as follows in these situations:
Credits and Overpayments:
Payment Prioritization rules also apply to credits towards Accounts. When applied, the credit amount will be prioritized towards invoice lines in the same way a regular payment would, taking into account designated item prioritization and the age of the invoice line.
Staff users can create an overpayment when applying payment to an Invoice. The additional amount will be applied to the last invoice line on the Invoice. This will generate a credit memo and a journal entry. The overpayment amount will be available as a credit to pay towards the next Invoice.
Write-offs towards a Balance Due will generate an adjustment line for every write-off applied to an invoice line. These adjustment lines will in turn create extra transaction lines, and are recorded as journal entries.
Price adjustments are applied to the applicable invoice line on an Invoice. When a price adjustment is applied, the invoice line’s Balance Due will update to reflect the adjusted price. Price adjustments will carry the same priority as the invoice line they are adjusting.
Adding Item Via Adjustment Line:
When a new item is added to an Invoice via an adjustment line, a new invoice line will be added. It will be marked as an adjustment and carry the priority of the item being added. A journal entry will be created when the Invoice gets marked as posted.
In the case of an Invoice with two items from different business groups, if one business group does not have an Accounts Receivable account, applicable debits and credits will be applied to the business group instead in order to respect both business groups’ General Ledger accounts.