Returned payments can occasionally disrupt your bookkeeping, particularly when you’re relying on automated reconciliation in Xero. Whether it’s a customer’s payment that bounces back due to insufficient funds, or a supplier refund rejected because of incorrect bank details, it’s essential to ensure these movements are recorded accurately. Failing to account for returned transactions properly can lead to discrepancies between your bank balance and Xero, as well as confusion when reviewing aged receivables or payables.
Thankfully, Xero provides a clear process to handle these situations—whether it’s an individual payment or part of a larger batch. In this guide, we’ll walk you through both scenarios and show you how to use suspense or reversed payment accounts to keep your books tidy and reconciled.
Single payment on an individual invoice or bill:
- 1. Find and delete the original payment from your bank account or from the invoice or bill.
- 2. Reconcile the statement line for the original payment with a receive or spend money transaction. Allocate the transaction to a nominal code called : “Reversed payments account” or “suspense account”.
- 3. For the payment reversal, reconcile the statement line with a spend or receive money transaction using the same account as above. These two transactions will be offset against each other.
- 4. When the payment is made again, reconcile it with the unpaid invoice or bill.
Payment is a part of a batch
- 1. Find and unreconcile the batch payment or batch deposit.
- 2. Edit the batch payment or batch deposit to remove the bill or invoice from the batch.
- 3. Create a spend or receive money transaction for the original payment and allocate it to a “Reversed payment account” or “suspense account”.
- 4. Reconcile the original payment in your bank account with the batch payment or batch deposit and spend or receive money transaction that we already have created.
- 5. Reconcile the statement line for the reversed payment with a receive or spend money transaction, using “Reversed payment account” or “suspense account”. The two transactions will be offset against each other.
- 6. When the payment is made, reconcile with the unpaid bill or invoice.
Tips for managing returned payments in Xero
-
Use clear descriptions: When creating the manual spend or receive money transactions, include details like “Returned payment from [Customer Name] – original date [xx/xx/xx]” to make tracking easier later on.
-
Add a note to the contact: This is particularly useful if the issue is recurring, or you’re waiting on revised payment details.
-
Avoid deleting invoices or bills: It’s better to leave the original invoice or bill in place and clear it when the corrected payment is made.
-
Monitor the suspense account regularly: Ensure any balances in your suspense or reversed payments accounts are only temporary and cleared down within the same reporting period wherever possible.
Read more of our tips for using Xero and if you need help with this, or with other advice, then please get in touch with our accounting team.