Xero how to
Reconcile an overpayment in Xero
Xero will not accept a payment larger than the invoice it settles, so the excess has to become its own object. Reconcile the bank line in full, record the excess as an overpayment against the payer, and hold it until it is applied to a later invoice or refunded. Until then it is money received, not revenue earned.
Key facts
- What Xero refuses
- A payment worth more than the invoice already recorded, which comes back as the message that the payment amount exceeds the amount outstanding on this document1
- What the excess becomes
- Held money against the payer rather than revenue, because money received before the service it pays for is delivered is a liability until it is applied, forfeited or refunded4
- How the templates hold it
- Account 245, Customer deposits and credits held, a liability coded BAS Excluded so held money stays out of G1 until it becomes a real supply4
- How an account credit is told apart
- An unallocated payment with no deposit or package billable item attached, which is the detection signal the templates carry5
- Default receipt treatment
- Held as a security deposit, gross and out of the sales labels, because no specific supply has been identified yet4
- The revenue leg once it is applied
- All three canonical templates resolve a private session to account 400, Clinical services, private patients, at the GST Free Income rate4
- The conditions behind a GST free session
- A health service that is not a medical service is GST free where it is a listed health service, is performed by a recognised health professional in that listed health service, and is generally accepted in that profession as necessary for the appropriate treatment of the recipient of the supply6
- Refunding money not yet applied
- The liability is released. Nothing was taxed on receipt, so nothing needs to be untaxed5
- Why a paid invoice can still be open in Xero
- A payment made from account credit in the practice software is not accepted by Xero, so the invoice syncs across and stays open2
Why Xero will not let the payment stretch
A payment in Xero settles an invoice, and it cannot be worth more than the invoice it settles. Push a larger payment across from a practice software export and the write comes back rejected, with a message naming the amount outstanding on the document. The excess is not a rounding problem to be nudged away. It is money the practice holds and has not yet earned, and Xero wants it recorded as its own thing.
This happens when the payment you are exporting is worth more than the invoice's total already recorded in Xero.1
The common trigger in a clinic is a card fee added to an invoice after that invoice was exported and approved. The invoice in Xero is locked once a payment sits against it, so the later, larger payment has nowhere to land. The private card and Stripe page covers the fee side of that; this page covers what to do with the excess itself.
Three different things get called an overpayment
This is where a generic answer stops being useful. A clinic uses one word for three situations that arrive the same way at the bank and part company as soon as an activity statement is run. Two of the three canonical templates name four deposit types and give each a detection signal, so the product can tell them apart from what the practice software sent rather than from what the bank line looks like.
| Type | How it is detected | Default receipt treatment |
|---|---|---|
| Account credit or overpayment | An unallocated payment with no deposit or package billable item attached | Held as a security deposit, gross, out of the sales labels |
| Booking deposit | An unallocated payment, or a billable item carrying a deposit amount, taken at the time of booking | Held as a security deposit until it is applied to a session or forfeited |
| Prepaid package or session block | A package billable item, for example a discounted block of sessions bought upfront | Treated as a part payment, so GST is taken at receipt rather than deferred |
| Gift voucher | A voucher billable item, with a manual override | Held as a security deposit, with the treatment left for the practice's BAS agent |
The third row is the one that moves. A package sold for a defined set of named future sessions looks like an advance payment for an identified supply, so both templates take GST at receipt on it and both flag that treatment as one to prove in a paid Xero test organisation before it is relied on. The other rows have no identified supply yet, so nothing is taxed until one appears.
Reconciling the bank line itself
The bank line has to reconcile in full, in one pass, whatever the invoice says. Splitting the line is what makes that possible: one half behaves like an ordinary payment and the other half becomes the object that holds the excess.
- Open the statement line and work out how much of it settles an invoice and how much does not.
- Split the line into those two amounts, using the split option on the statement line.
- Match the invoice half through find and match, which closes the invoice on the date the money arrived.
- Record the remaining half against the same contact, as an overpayment or as a receipt to the held money account.
- Leave one reconciled bank line behind, not a payment stretched to cover an amount the invoice does not carry.
Where a single deposit covers several invoices and an excess, the same split holds. Each invoice is matched at its own amount and what is left over is recorded once, which is also how a funder batch is handled on the clearing account page.
Where the money sits until it is applied
Money received before the service it pays for is delivered is a liability, not revenue, until it is applied, forfeited or refunded. Every canonical template carries one account for it: 245, Customer deposits and credits held, a liability coded BAS Excluded, so held money stays out of G1 until it becomes a real supply. The psychology template names the same account Customer deposits and booking fees held, because that is the practice shape it was written for.
Two holding patterns exist, and they are worth telling apart. Xero's own overpayment object sits against the contact and is allocated to an invoice later. The templates instead hold the money in the liability account and put a Less deposit applied line, also at BAS Excluded, on the session invoice when it is raised. The templates show native Xero prepayments as coming rather than enabled in the product, and say the liability pattern has to be proven on both GST bases in a paid Xero test organisation first.
When GST attaches, and to which leg
Held money carries no GST consequence of its own while it is held. The consequence belongs to the session it is eventually applied to, and that session takes the treatment its funding source and service category resolve to. For a private client in an allied health practice, all three canonical templates resolve that to one account and one tax rate.
So the timing question and the treatment question are separate, and answering one does not answer the other. The timing depends on what the money is: a package is taxed at receipt, an account credit is not taxed until it is applied. The treatment depends on the session: a GST free health service stays GST free at the point it is recognised, and a report or a supervision hour does not. The organisation's cash or accruals basis moves the timing again for a part payment, which the templates flag as a setting to confirm rather than a fixed answer.
What the practice software sends across
A clinic rarely types an overpayment into Xero by hand. It arrives through the practice software sync, and both of the practice systems quoted on this page document a case where the money does not cross cleanly.
Please keep in mind that payments made using account credit in Cliniko are not accepted by Xero. The invoices will sync over from Cliniko, but they will remain as open invoices in Xero (even though they would be closed in Cliniko).2
- An invoice that reads as paid in the practice software can sit open in Xero, because the credit that paid it was not a payment Xero would take.
- A refund of a client's credit is entered in Cliniko as a negative payment, while the templates post a refund in Xero as a credit note plus a payment against it.
- An erroneous credit can be archived in Cliniko instead of refunded, which takes an administrator or a power receptionist.
- A fee added to an invoice after it was exported produces the rejection at the top of this page, because the invoice in Xero is already locked by its payment.
The practical consequence is an aged receivables report with invoices on it that the practice believes are settled. Reconciling the held money account against the practice software credit ledger, by payer, is what finds them.
Refunding it, or turning it into a cancellation fee
Held money leaves the account in one of four ways, and the templates give each a posting rather than leaving it to the person reconciling.
- Held and not applied, then refunded: the liability is released. Nothing was taxed at receipt, so nothing needs to be untaxed.
- Already applied to an invoice, then refunded: a credit note on the original tax type, then a payment against that credit note. The same document pair as any other refund.
- Partly held and partly applied: no single posting is obviously right, so the product raises a question with both candidates shown instead of choosing.
- Forfeited after a late cancellation: it becomes a cancellation fee, dated on the actual cancellation date and taking the tax type of the appointment it replaces.
The forfeit case is the one that surprises people. The psychology template posts a forfeited deposit to 422 and sets the tax mode to inherit the underlying service, so a forfeited private session is treated one way and a forfeited employer funded booking another. The cancellation window itself is a contract term the practice sets, not an accounting fact, and the template says so in its own note.
Checking the held money account at month end
The account earns its place by being readable. Run it as a transaction listing rather than a single balance, and the questions it answers are the ones a practice owner actually asks.
- Which payers are holding credit, and how much each holds.
- How long each amount has been held, which is the ageing that turns a credit into a refund conversation.
- Whether anything in the account has been sitting there since before the last activity statement, which is worth a second look.
- Whether the total agrees with the credit ledger in the practice software, payer by payer.
A difference between the two ledgers is not a mystery. It is usually a credit applied on one side and not the other, and it is found by comparing payers rather than totals.
What Ledger Map does with it
Ledger Map holds one standing map for the practice, approved before anything syncs. An unallocated payment resolves through that map to the deposit type its detection signal names, is posted as one balanced document set against the account the practice's template holds it in, and leaves one exact match in the bank feed for the deposit.
Where the money is partly held and partly applied, or where the deposit type is genuinely ambiguous, the line becomes a question with both candidate postings laid out rather than a silent posting. The account and the tax code on this page come from the canonical template the practice starts from, and the practice approves the map before a single invoice syncs.
Questions
Why will Xero not let me record a payment bigger than the invoice?
Because a payment settles an invoice and cannot exceed it. The write is rejected with a message saying the payment amount exceeds the amount outstanding on the document. The excess has to be recorded as its own object against the payer, which is what lets the bank line still reconcile in full.
Is an overpayment the same thing as a prepayment?
They are two names for two situations. An overpayment is an excess that arrived against an invoice. A prepayment is money that arrived before any invoice existed, such as a booking deposit or a package. Either way the canonical templates hold it as a liability against the payer until it is applied to an invoice, forfeited or refunded.
Do we owe GST on a client's account credit before we use it?
The canonical templates hold an account credit as a security deposit, gross and out of the sales labels, because no specific supply has been identified yet. GST attaches when the credit is applied to a session, and the session's own treatment decides what that is. A prepaid package is treated differently, taxed at receipt.
The invoice is paid in our practice software but still open in Xero. Why?
A payment made from account credit in the practice software is not accepted by Xero. The invoice syncs across and stays open, which is why an aged receivables report can show invoices the practice believes are settled. Matching the held money account against the credit ledger payer by payer finds them.
A client wants their credit back. What do we post?
It depends on whether the money was ever applied. Money that was not applied is given back by releasing the liability, since nothing was taxed on receipt. Money already applied to an invoice needs a credit note on the original tax type plus a payment against it. A partial refund across both is a question with two candidate postings.
What happens when a booking deposit is forfeited?
It stops being held money and becomes a cancellation fee, dated on the actual cancellation date rather than the notice deadline. The psychology template gives the fee the tax type of the appointment it replaces, so a forfeited private session and a forfeited employer funded booking are not treated the same way.
Read next
Sources
Open questions
- The top five results, the People Also Ask set and any AI Overview for this query could not be observed on 3 Sep 2026, because the session's web search budget was spent and central.xero.com returns an empty document to an automated read. The answer landscape in the brief is the shape adjacent pages in this family found rather than a ranking measured for this query.
- Xero Central settles where an overpayment is refunded from, and the steps name that path. Xero's own description of its overpayment and prepayment objects was not read: the Accounting API reference resolves but renders its body client side. What this page says about the two objects rests on the canonical templates' own note and on the practice software vendors' accounts of the rejection, so no key fact rests on it.
- The templates take GST at receipt on a prepaid package and flag that treatment as one to prove in a paid Xero test organisation on both GST bases before it is relied on, so the package row is stated as the templates hold it rather than as settled.
- Native Xero prepayment and overpayment objects are shown as coming rather than enabled in the product. The psychology template says the liability account pattern has to be proven on both the cash and the accruals GST basis in a paid Xero test organisation first, so this page states both patterns and claims neither as settled.
- Whether GST on a part payment is attributed at receipt or at supply moves with the organisation's cash or accruals basis, which the templates carry as a setting to confirm rather than a fixed answer.
- Gift voucher treatment is left open by the template's own note, since ATO Division 100 was not covered in the research read for it. The voucher is named here as a fourth deposit type and its treatment is not stated.
- No practitioner forum thread could be read in a practitioner's own words on 3 Sep 2026, so the first-hand description quoted on this page is a vendor's account of the failure rather than a clinic's.
- Integrate Cliniko with your Xero account
Cliniko. Retrieved 3 Sep 2026. Source updated 28 Jul 2026.
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- Delete or refund a patient's account credit
Cliniko. Retrieved 3 Sep 2026. Source updated 3 Jan 2025.
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- Other health services, GST and health
Australian Taxation Office. Retrieved 3 Sep 2026. Source updated 12 Jun 2024.
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Review
Last reviewed 3 Sep 2026 by Shane
General information for Australian allied health practices, not tax advice. Confirm a treatment with your BAS agent or accountant before you post it.
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