Pick an allocation default and write it down
The default matters less than having one. Without a stated rule, two people apply the same payment differently and the aging report becomes a matter of opinion.
- Oldest invoice first — the common default; keeps aging from drifting.
- Customer-specified invoice — always wins when the remittance names one.
- Deposit or progress milestone — applied to the invoice that milestone belongs to.
- Disputed invoices — usually excluded from automatic ordering by policy.
Where partial payments quietly cause damage
A customer pays a round number against four invoices. Someone applies it to the newest one because it was on screen. Now an 80-day balance still shows as fully unpaid, the chase escalates, and the customer — who did pay — gets an angry call. Trust is expensive to rebuild.
The same problem reversed: a payment is recorded against the customer but never applied to any invoice. Total cash looks right, AR looks too high, and nobody can explain the gap without opening every record.
Overpayments, deposits and credits
- An overpayment creates a credit balance to be applied to future invoices or refunded.
- Do not create a negative invoice to absorb it; that corrupts invoice numbering and reporting.
- Deposits held against future work stay identifiable until the work is invoiced.
- Refunds are their own recorded event with their own approval.