Payment Entry
In ERPNext, a payment entry is an accounting record that attests to the receipt of funds from a client or payment to a supplier. It indicates whether the outstanding balance has been paid in full or in part by linking directly to sales or purchase invoices.
In order to maintain accurate accounts payable and receivable balances, this entry updates both your bank or cash account and the related party's account. Additionally, it facilitates the tracking of currencies, payment methods, and any gains or losses in exchange when dealing with foreign currencies.
Payment Entry can be made against the following transactions.
- Sales Invoice
- Purchase Invoice
- Sales Order (Advance Payment)
- Purchase Order (Advance Payment)
- Expense Claim
- Internal Transfer
In ERPNext, there are two options through which User can capture the payment:
- Payment Entry (Default)
- Journal Entry
To access the Payment Entry list, go to:
1. Prerequisites
A Payment Entry can also be created directly then linked to an order/invoice later. Before creating and using Payment Entry, it is advised to create the following first:
If you're following the Sales/Purchase Cycle, you'd need the following:
- Sales Order(Advance Payment)
- Purchase Order(Advance Payment)
- Sales Invoice
- Purchase Invoice
Set up:
- Chart of Accounts
- Company (for default accounts)
2. How to create a Payment Entry
On submitting a document against which Payment Entry can be made, you will find the Payment option under the Create button.
- Change the posting date.
- The Payment Type will be set based on the transaction you're coming from. The types are Receive, Pay, and Internal Transfer.
- The Party Type, Party, Party Name will be fetched automatically.
- The Account Paid To and Account Paid From will be fetched as set in the Company form.
- The Amount Paid will be fetched from the Invoice.
- Save and Submit. Payment Entry from SO
2.1 Creating a Payment Manually
A Payment Entry created manually will have no order/invoice linked to it. Payments made this will be recorded in the Customer's/Supplier's account and can be reconciled later using the Payment Reconciliation Tool.
- Go to the Payment Entry list and click on New.
- Select the Party Type and the respective Customer/Supplier.
- Select the Bank Account/Cash Account Paid To and Paid From. Enter the Cheque Number and date if bank transfer.
- Enter the Amount Paid.
- Save and Submit.
3. Features
3.1 Setting Mode of Payment
Mode of Payment: The term mode of payment refers to the payment method, such as cash, bank transfer, cheque, or wire transfer. It facilitates better tracking by classifying and organising payment entries. You can quickly reconcile payments with your bank or cash accounts and create transparent reports that illustrate the flow of money into and out of your company by choosing the appropriate mode.
3.2 Payment From/To
Party Type: Whether Customer, Supplier, Employee, Shareholder, Student, or NGO Member.
Party: The specific party for which the Payment Entry is made.
Party Name: The name of the party, this is fetched automatically.
Company Bank Account: Your Company's Bank Account.
Party Bank Account: The Party's Bank Account.
Contact: If the Party is an organization, a Contact person can be stored here.
3.3 Accounts
Party Balance: The overall amount receivable or payable from Customer or Supplier from Invoices set in the current Payment Entry. Paid amounts will be positive and if advance payments are made, they will be negative.
Account Paid From: The Account from which the amount will be deducted when Payment is submitted.
Account Paid To: The CoA account from which the amount will be added when Payment Entry is submitted.
Account Currency: The Currencies of these accounts will be fetched as set in the Account and cannot be edited here. To know about more about transactions in multiple currencies, visit this page.
Account Balance: The total amount balance from all the invoices of the selected accounts.
Paid Amount: The total amount paid for the current Payment Entry is shown in this field.
3.4 Reference
Fetching outstanding Invoices
You can pull all outstanding invoices or open orders for a supplier or customer straight into a payment entry by using the Fetch Outstanding Invoices feature. ERPNext displays the invoices that are due for that party within a selected time frame when you click Get Outstanding Invoices (or Orders). The money being paid, in full or in part, can then be divided among one or more invoices. To ensure correct settlement and tracking of dues, payments are matched against sales invoices for customers and purchase invoices for suppliers.
If the Party has not made full payment, enter the amount paid in the 'Allocated' field.
If creating Payment Entry for a Customer, the Payment Amount will be allocated against a Sales Invoice. On the same lines, when creating Payment Entry for a Supplier, Payment Amount will be allocated against a Purchase Invoice.
Payment References table
Type: Whether the payment is being made against a Sales Order, Sales Invoice, or a Journal Entry.
Name: The particular transaction ID is fetched/selected here.
Total Amount: The total amount of one Invoice/Journal Entry in the row.
Outstanding: The amount to receive/to pay for this invoice.
Allocated: If the Paid Amount is less than the invoice amount only the paid amount will be allocated to the invoice(s) fetched in the Payment Entry. The payment may be made in parts, for example, if there are three invoices of amounts 20, 20, 20, the Paid Amount is 60 then this Paid Amount will be distributed equally. Payment Terms may also be involved.
What is Unallocated Amount?
ERPNext does not lose track of a Payment Entry that exceeds the invoice total; instead, the excess amount is recorded in the supplier's or customer's account as an Unallocated Payment. This amount can still be deducted from subsequent invoices.
For example, if a customer pays £1,500 for a £1,000 invoice, the additional £500 remains in their account. ERPNext can automatically apply the £500 that has already been paid to the next £1,000 invoice, bringing the total amount owed down to £500.
3.5 Deductions or Loss
The amount paid and the amount owed on the invoice may not always match when making a Payment Entry in ERPNext. This tiny discrepancy, known as the Difference Amount, could result from currency exchange fluctuations, early payment discounts, or rounding adjustments.
For instance, if the customer pays only $25 but the invoice shows $30, the $5 discrepancy needs to be taken into account. With the Make Difference Entry option in ERPNext, you can assign this discrepancy to a particular Write Off account. This guarantees that there are no lingering discrepancies that prevent submission and that your accounts stay balanced. Your financial records will stay accurate and the Payment Entry can be submitted without any issues if the difference is written off.
3.6 Write Off
When the amount paid on an invoice is less than the amount owed and the remaining amount is deemed uncollectable, this is known as a write-off. This typically occurs as a result of rounding errors, discounts, or minor fees that the client refuses to pay. The outstanding amount is moved to a Write Off account rather than remaining on the invoice. This guarantees that the invoice is marked as settled, the accounts are balanced, and the loss is accurately documented in the books.
3.7 After Submitting
Save and Submit Payment Entry. On submission, outstanding will be updated in the Invoices.
If payment entry was created against Sales Order or Purchase Order, the field Advance Paid will be updated in them. When creating Invoice against those transactions, Payment Entry will be auto-updated in that Invoice so that you can allocate invoice amount against advance payment entry.
For incoming payment, the accounts posting will be done as follows.
- Debit: Bank or Cash Account
- Credit: Customer (Debtor)
For outgoing payment:
- Debit: Supplier (Creditor)
- Credit: Bank or Cash Account
4. Other cases
4.1 Multi Currency Payment Entry
If you want to maintain a receivable/payable account in foreign currency, then create accounts with foreign currency (different from Company currency) and link it in the party account.
For example: ERPNext allows you maintain accounts and invoicing in multiple currency. If an invoice is made in the party currency, Currency Exchange Rate between the Company's base currency and party currency is also entered in the invoice.
When creating Payment Entry against that invoice, the current exchange rate will be fetched, but you can set the Currency Exchange Rate at the time of payment to match your records.
Click on the Set Exchange Gain/Loss button to automatically add a row to write off the difference amount.
Since Currency Exchange Rate fluctuates all the time, it can lead to a difference in the payment amount against invoice total. This difference amount can be booked in the Currency Exchange Gain/Loss Amount.
Payments can also be made independent of invoices by creating a new Payment Entry.
4.2 Internal Transfer
When money moves between two accounts within the same business without involving a client or supplier, it's referred to as an internal transfer. For example, ERPNext logs an internal transfer if funds are transferred from your PayPal account to the bank account of your business. Without having an impact on payables or receivables, this aids in tracking cash movement within the company. It guarantees that your cash and bank balances remain correct while demonstrating that the transaction was merely an internal money transfer.
Following internal transfers can be managed from the Payment Entry.
- Bank - Cash
- Bank - Bank
- Cash - Cash
- Cash - Bank
4.3 Managing Different Payment Scenarios
For an unpaid invoice, outstanding amount = grand total. When creating Payment Entries, the value in the outstanding amount will reduce.
In most cases, apart from retail sales, billing and payments are separate activities. There are several combinations in which these payments are done. These cases apply to both Sales and Purchases.
- They can be upfront (100% in advance).
- Post shipment. Either on delivery or within a few days of delivery.
- Part in advance and part on or post delivery.
- Payments can be made together for a bunch of invoices.
- Advances can be given together for a bunch of invoices (and can be split across invoices).
ERPNext allows you to manage all these scenarios. All accounting entries (GL Entry) can be made against a Sales Invoice, Purchase Invoice or Payment Entry of advance payment (in special cases, an invoice can be made via a Sales Invoice too).
The total outstanding amount against an invoice is the sum of all the accounting entries that are made “against” (or are linked to) that invoice. This way you can combine or split payments in Payment Entry to manage the scenarios.
4.4 Difference between Payment Entry and Journal Entry
Using Journal Entry requires an understanding of which Account will get Debited or Credited. In the Payment Entry, it is managed in the backend, hence simpler for the User.
Payment Entry is more efficient in managing payments in foreign currencies.
Cheques can be printed from Payment Entries using the Cheque Print Format.
Journal Entry can still be used for:
- Updating opening balance in Accounts.
- Fixed Asset Depreciation entry.
- For adjusting Credit Note against Sales Invoice and Debit Note against Purchase Invoice, in case there is no payment happening at all.
4.5 Payments Using Journal Entry
To make payment using Journal Entry follow these steps:
Activate Payment via Journal Entry. Go to Accounting > Accounting Masters > Accounts Settings, check the box 'Make Payment via Journal Entry'. Enable Payment Entry via Journal ENtry
On submitting a document against which Journal Entry can be made, you will find the Payment under the Create button.
- Save and submit the journal entry to record the payment against the invoice