Wednesday, October 27, 2010

QuickBooks: Auto-Apply Payments

A client asked: We would like to turn off the auto-apply for payments. Is this a mistake and, if not, how do we turn it off

It is almost always correct to turn off auto-apply for payments. There is a preference in the Sales & Customers preferences to automatically apply payments on the Receive Payments window. Uncheck this to turn off the feature.

With auto-application turned on, QuickBooks first looks for an invoice that is the same amount as the payment from the customer. If there is no invoice for the same amount as the payment (e.g. partial payments or checks that pay more than once invoice), QuickBooks applies the check to the oldest open invoice. If any amount is unapplied after paying the oldest open invoice, QuickBooks applies the remainder to the next oldest open Invoice and so on.

Although this feature is designed to increase data entry efficiency, it is almost always best to turn the feature off because the auto-payment process only works well when the check is the exact amount of the invoice. The application of non-exact amounts to the oldest invoice is rarely the best approach.

There is one exception - if you almost never have more than one open invoice for a customer at any given time, you can use the auto-application of payments to invoices with little risk of misapplication.