In Xero to create an overpayment (when you’ve paid too much or when someone’s paid you too much):

1. Make an overpayment – to do this go to: account > bank > new > spend money/receive money (depending if it’s a overpayment that you’ve received money or an overpayment where you’ve spent too much money.
   
2. You’ll then need to reconcile to a bank statement line with the overpayment that you’ve created.
   
3. Allocate your overpayment to a full invoice that you’ve received or that you’re sending out. To do this, after reconciling the overpayment to a bank line statement, create your full invoice (use the same contact name), then a pop up box appears after approving the invoice asking you whether you want to allocate the overpayment to it – that’s the Xero magic happening there.
   

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