---
updatedAt: 2026-04-09T13:42:46.000Z
agentTools:
  projectIndex: https://docs.pelcro.com/v2.4/llms.txt
---

# Applied Balance

Customer account balance applied to pay invoices - using existing credits and prepayments instead of new payments.

## What is Applied Balance?

**Applied Balance** represents customer account credits being used to pay invoices during the reporting month. Instead of making a new payment, the customer uses existing credit on their account (from prepayments, overpayments, refunds, or other credits) to satisfy invoice amounts owed.

When balance is applied:

1. **Customer Balance decreases** - Credit is used up
2. **Account Receivable decreases** - Invoice is paid off (customer owes less)
3. **No cash movement** - No money changes hands (credit was already on account)

This row appears when **customer balance is applied to invoices**, not when the credit was originally issued.

***

## What Gets Applied?

Customer balance that can be applied comes from various sources:

* Prepayments made in advance
* Overpayments on previous invoices
* Refunds issued as store credit instead of cash
* Credits from billing adjustments
* Gift card balances
* Agency subscription credits

***

## Transactions Included

A balance application appears in "Applied Balance" when ALL of the following are true:

1. **Created this month**: Balance transaction `created` date is within the selected month
2. **Applied to invoice**: Transaction type is "applied to invoice" or "unapplied from invoice"
3. **Has invoice**: Transaction is linked to a specific invoice
4. **Correct account and currency**: Matches selected account and currency

***

## Real-World Examples

**Example 1 - Using Prepayment Credit:**

* Customer has $500 prepayment credit on account
* New $110 invoice is created
* Customer applies $110 credit to invoice
* **Result in October's Report:**
  * Customer Balance: -$110 (credit used)
  * Account Receivable: -$110 (invoice paid off)
  * Remaining credit: $390

**Example 2 - Overpayment Applied:**

* Customer accidentally paid $150 for $100 invoice last month
* Extra $50 stayed as credit on account
* New $75 invoice created this month
* Customer applies $50 credit + pays $25 new payment
* **Result in October's Report:**
  * Customer Balance: -$50 (credit applied)
  * Account Receivable: -$50 (portion paid via credit)
  * Customer also makes $25 actual payment (shows in Payments Received)

**Example 3 - Gift Card Usage:**

* Customer has $100 gift card balance
* Places order for $60
* Gift card balance applied to order invoice
* **Result in October's Report:**
  * Customer Balance: -$60 (gift card used)
  * Account Receivable: -$60 (order invoice paid)
  * Remaining gift card: $40

**Example 4 - Refund Credit Applied:**

* Customer received $200 refund as store credit last month
* New subscription invoice for $120 created
* Credit applied to subscription invoice
* **Result in October's Report:**
  * Customer Balance: -$120 (credit used)
  * Account Receivable: -$120 (subscription paid via credit)
  * Remaining credit: $80

***

## Columns Affected

| Column                 | Effect    | Sign         | What It Means           |
| ---------------------- | --------- | ------------ | ----------------------- |
| **Customer Balance**   | Decreases | Negative (-) | Credits being used up   |
| **Account Receivable** | Decreases | Negative (-) | Invoices being paid off |

***

## Customer Balance

### What Does This Number Mean?

**Customer Balance** shows how much credit was used from customer accounts to pay invoices.

Think of it as: **"Store credit being spent"**

### The Exact Calculation

```
For each balance application this month:
  Add: -1 × Balance transaction amount

Result is shown as a NEGATIVE number (credit decreasing)
```

**Why Is This Number Negative?**

Customer Balance is an asset from the customer's perspective (credit they can use). When they use it, the asset decreases, shown as negative.

**Example:**

| Date      | Customer   | Invoice | Credit Applied | Running Total |
| --------- | ---------- | ------- | -------------- | ------------- |
| Oct 5     | Customer A | #1001   | -$110          | -$110         |
| Oct 12    | Customer B | #1002   | -$250          | -$360         |
| Oct 20    | Customer C | #1003   | -$75           | -$435         |
| **Total** |            |         |                | **-$435**     |

***

## Account Receivable

### What Does This Number Mean?

**Account Receivable** shows how much less customers owe you because they used credits instead of making new payments.

Think of it as: **"IOUs paid with credits"**

### The Exact Calculation

```
For each balance application this month:
  Add: -1 × Balance transaction amount

Result is shown as a NEGATIVE number (receivable decreasing)
```

**Why Is This Number Negative?**

Account Receivable is an asset (money owed to you). When it's paid off with credits, the asset decreases, shown as negative.

**Note:** The amount is always equal and opposite to Customer Balance - when $100 credit is applied, Customer Balance goes down $100 and Account Receivable goes down $100.

***

## Applied Balance vs. Payments Received

### Key Differences

| Aspect                  | Applied Balance                       | Payments Received           |
| ----------------------- | ------------------------------------- | --------------------------- |
| **Cash Movement**       | No cash changes hands                 | Actual money received       |
| **Source**              | Existing customer credit              | New payment from customer   |
| **When Credit Created** | Previously (prepayment, refund, etc.) | N/A                         |
| **Customer Balance**    | Decreases                             | Increases (for prepayments) |
| **Cash Columns**        | Not affected                          | Cash increases              |

**Example Timeline:**

**Month 1 (September):**

* Customer makes $500 prepayment
* Payments Received: Cash +$500, Customer Balance +$500

**Month 2 (October):**

* Invoice created: $110
* Customer applies credit to invoice
* Applied Balance: Customer Balance -$110, Account Receivable -$110
* NO entry in Payments Received (no new cash)

***

## Unapplied Balance

Sometimes credits that were applied get "unapplied" (reversed):

* Invoice gets voided after credit was applied
* Customer changes payment method
* Billing adjustment corrections

When this happens, the amounts reverse:

* Customer Balance: Increases (credit returned to account)
* Account Receivable: Increases (invoice debt restored)

***

## Common Questions

### Why is this different from "Payments Received"?

* **Payments Received**: New money coming in from customers
* **Applied Balance**: Existing credits being used to pay invoices

No new cash is involved in Applied Balance - the credit was already on the customer's account.

### When was the credit originally created?

**A:** The credit could have been created in any previous month through:

* Prepayments
* Overpayments
* Refunds issued as credit
* Billing adjustments
* Gift cards purchased

This row only shows when credits are **used**, not when they're created.

### Can customers apply credits to any invoice?

**A:** This depends on your system configuration. Typically, customers can apply their account balance to pay for any outstanding invoice or new purchase.

### What if a customer applies more credit than the invoice amount?

**A:** Credits can only be applied up to the invoice amount. If a customer has $500 credit but an invoice is only $110, only $110 is applied. The remaining $390 credit stays on their account.

### Do taxes get paid with applied balance?

**A:** Yes. When an invoice is $110 (including $10 tax) and a customer applies credit, the full $110 including tax is paid via the credit application.

### Can I see which invoices had credits applied?

**A:** Yes! If you have the appropriate permissions, there's a download icon next to this row that lets you export detailed transaction data showing which customers applied credits to which invoices.

### What's the difference between applied and unapplied balance?

* **Applied**: Credit used to pay an invoice (Customer Balance and AR both decrease)
* **Unapplied**: Previously applied credit reversed (Customer Balance and AR both increase back)

Unapplied happens when an invoice is canceled or voided after credits were already applied to it.

***

## Summary

**Quick Reference:**

**What appears here:** Customer account credits applied to pay invoices

**Inclusion criteria:**

* Balance transaction created this month
* Type: Applied to invoice or Unapplied from invoice
* Linked to a specific invoice
* Correct account and currency

**Columns:**

* Customer Balance: Negative (credits used)
* Account Receivable: Negative (invoices paid with credits)

**Key Point:** No cash movement - using existing credits, not making new payments

# Sibling pages

* [Uncollectible Invoices](https://docs.pelcro.com/v2.4/docs/accounting-adjustments-uncollectible-invoices.md)
* [Voided Invoices](https://docs.pelcro.com/v2.4/docs/accounting-adjustments-voided-invoices.md)
* [Credit Notes](https://docs.pelcro.com/v2.4/docs/accounting-adjustments-credit-notes.md)