Q: If a business receives an overpayment on an invoice, can we apply the overpayment to a different outstanding invoice?
If a client has an outstanding balance and overpays on an invoice, can we apply the overpayment to a different outstanding invoice or do we need to get permission first or do we just have to send them a check for the overpaid amount? Do I also need to contact them first if I sent back the overpaid amount?
A: As with many answers to legal questions, the answer is "it depends". It depends on what kind of contract you and your customer have. For example, a gym membership or statutorily defined consumer contract or retail installment contract may be regulated in such a way as to prohibit the right of setoff. For very little money, hire an attorney to review your specific contract (if any) and how you interact with customers to get the correct answer to your unique business.
Tim Akpinar agrees with this answer
A: It could depend on the terms of the contract (and subject to state law). The safest approach could be to disclose the error and ask the client if they would like it applied to their outstanding invoice, thereby avoiding any accusations of questionable bookkeeping practices. Your rights to recover other invoice are not diminished by being forthright in the overpayment. You could contact them to let them know - it's unlikely anyone would object to being told about money being returned to them. Good luck
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