How do you correct accounts receivable that has a credit balance?

Essentially, a “credit balance” refers to an amount that a business owes to a customer. It’s when a customer has paid you more than the current invoice stipulates.

You could be left with a credit balance in accounts receivable for many different reasons. For example, it could be because the customer has overpaid due to an error in your original invoice or because they’ve accidentally duplicated payment.

It can also arise when a discount is provided on goods or services after an invoice is initially sent or when a customer returns goods after already paying their invoice.

Sometimes, an AR credit balance isn’t the result of an error but a planned move by a company or business entity. For example, if you’re experiencing cash flow problems, you may ask a customer to make a deposit for goods or services to be delivered in the future. After receiving advance payment, you’d need to mark it in accounts receivable as a credit balances.

It’s essential to keep track of credit balances in accounts receivable. If you encounter AR credit balances regularly, it may indicate a pattern of inaccurate billing from your accounting team. Once you’ve identified a credit balance, you must determine what to do with it. In-depth guidelines should be outlined in your accounts receivable credit balance policy. You can create a refund if your client doesn’t use the excess cash in their account.