What is a credit balance review?

Credit balance review is the periodic examination of accounts receivable credit balances (amounts owed to clients rather than by them), identifying causes and resolving them through refund, application to future invoices, or correction of errors. For professional service firms, credit balances often result from overpayments, duplicate payments, or billing credits and should be resolved promptly.

Key characteristics

• Examines AR accounts with credit balances

• Identifies causes: overpayment, credits, errors

• Determines appropriate resolution

• Should be reviewed monthly

• May require refunds or a future application

• Part of the AR management process

Why it matters for professional service firms

Credit balances represent money potentially owed to clients. Unresolved credit balances create accounting complications, client confusion, and potential liability. Professional service firms should review credit balances monthly and resolve them appropriately: refund if the client overpaid, apply to the next invoice if the relationship is ongoing, or correct an error if it caused the balance.

Real-world example

Kevin's firm had $38K in AR credit balances accumulated over time without review. Credit balance review: $15K from client overpayments (contacted clients, 3 requested refunds, others applied to next invoice), $12K from unapplied credits for project scope reductions (applied to outstanding invoices), $8K from payment application errors (corrected), $3K from duplicate payments (refunded). Result: credit balances reduced to $2K (current period items only). Clients appreciated proactive resolution; accounting was cleaner. The monthly review now prevents accumulation.