00
Days
00
Hours
00
Minutes
00
Seconds
Learn how to make everyone a forecasting hero in your team ⭐ FREE webinar: Sign up
Register Now!

Futrli's guide to credit balances in accounts receivable

Read our guide to what credit balances in accounts receivable are, how they occur, and how to manage them.

Sometimes, businesses can find that they have unusual account balances in their records on accounting. An example of these unusual balances in accounting is what is called a “credit balance”. We have compiled this short guide on a credit balance in accounts receivable. A credit balance in accounts receivable describes an amount that a business owes to a customer. This can occur if a customer has paid you more than the current invoice demands. Credit balances can be located on the right side of a subsidiary ledger account or a general ledger account.

A man looking at account balances
Sometimes, businesses can find that they have unusual account balances in their records on accounting.

How do I end up with a credit balance in accounts receivable?

A customer overpaying can lead to a credit balance - so can an error in your invoice or an accidental duplicate payment. Another common reason for credit balances in accounts receivable is a discount on goods or services being applied after an invoice is sent to the customer, or when a customer returns goods after paying for them. Some companies also cause these credit balances deliberately, eg if they are experiencing problems with cash flow, they may require a deposit for their goods and services from their customers. In any case, after receiving advance payment, you need to mark it in accounts receivable as a credit balance.

Man using software
A customer overpaying can lead to a credit balance - so can an error in your invoice or an accidental duplicate payment.

Example:

In this example, Company X makes a duplicated payment for your goods. This results in a credit balance of GPB 2,000 which can look like this in your accounting records(eg balance sheet or income statement):

No. - Customer - Balance

1 - Company X - (GPB 2,000)

2 - Company Y - GPB 7,000

3 - Company Z - GPB 1,300

You can see that company X's balance is an account payable, because the amount is owed to the customer, rather than the other way around.

Debit balances

It is also possible for your company to experience debit balances. A debit balance describes an amount that is owed to you by a vendor. This can be caused by a variety of factors, such as having purchased materials from a vendor, but after receiving the materials, found that they were not usable. After returning the materials, the vendor may issue a credit memo, which gets recorded as a debit balance.

Woman on her phone
It is also possible for your company to experience debit balances

Managing your accounts receivable credit balance policy

It's key for your business to manage the credit balances in accounts receivable - this helps ensure a healthy bank account. If credit balances in accounts receivable are a regular occurrence, there may be issues with how money is being billed in your business. This is why keeping track of credit balances is important. When you have identified an occurrence of inaccurate billing or any other factor leading to a balance, you should see what has led to this, particularly if this happens regularly. We recommend developing in-depth guidelines as an accounts receivable credit balance policy. For example, if your client is not going to use the excess cash in their account, you can create a refund for them. They will be glad to receive their repayment for their (credit card) balance and you can avoid confusion with other credit. Another option is to offer additional services or upgrades to counteract eg a wrongly taken direct debit.

Man on the phone on balcony
It's key for your business to manage the credit balances in accounts receivable - this helps ensure a healthy bank account.

Start Your Free Trial

Let informed predictions and powerful reporting guide your business. Be ahead of the curve with Futrli.

Get business advice here

Our blog holds tips, how to’s and general business advice.

Accountants

How to sell accounting advisory services and add value

Discover how to sell accounting advisory services and add value with strategic insights. Learn practical tips and success stories, and leverage Futrli tools.

Accountants

How to sell accounting advisory services and add value

Discover how to sell accounting advisory services and add value with strategic insights. Learn practical tips and success stories, and leverage Futrli tools.

Business

Payroll legislation changes 2025: What businesses must know

Stay ahead of 2025 UK payroll legislation changes, including NIC, NMW, SSP & SMP updates. Understand the financial impact and ensure compliance.

Business

Mastering cash flow in Hospitality: A Guide for resilient growth

Learn how to manage cash flow in hospitality, forecast trends, and keep your business financially stable with smarter planning and real-time insights.

Business

Managing construction cash flow for resilience and growth: A comprehensive guide

Cash flow management is the backbone of every construction business. We explore solutions to keep your finances resilient

Business

Best Cash Flow Forecasting Software for Small Businesses

Discover the best cash flow forecasting software for small businesses. Get real-time insights with cashflow forecast tools and simplify financial planning today

Business

Cash flow forecasting: Why it’s critical for SMEs across all industries

Discover why cashflow forecasting is vital for SMEs in industries like construction, retail, and hospitality. Plan ahead and thrive with Futrli’s tools.

Accountants

5 tips on how to train your accountant staff to deliver advisory services

As compliance work becomes increasingly automated, clients seek more value from their accountants. Here’s how to train staff on how to deliver advisory services

Accountants

Why accountants need to embrace advisory (and how to sell it effectively)

Automation and artificial intelligence are transforming accounting. Advisory work is emerging as the next step for accountants looking to stay relevant.

Business

Chancellor Rachel Reeves's first Budget raises taxes on business but softens the blow with targeted support

At Futrli by Sage, we’re here to help you make sense of all things Autumn Budget

Business

Preparing for Big Shifts in 2025: How Futrli Can Help You Handle Rising Wages, National Insurance & Tax Costs

The Autumn Budget has introduced key changes for small businesses, here’s how Futrli can help you manage these budget changes effectively.

Accountants

How Deborah Whitaker from Not Just Numbers Uses Forecasting to Transform Small Businesses

In a recent webinar, Deborah (Debbie) Whitaker, Founder and Director of Not Just Numbers, shared her approach to delivering effective forecasting services.

Futrli News

Futrli's February 2024 Release