Overpayments: Mode 1, Mode 2
It may happen that a customer wrongly pays an invoice twice or sends you a payment greater than the due amount. Even if WHMCS automatically handles this occurrence converting the surplus into credit, it does nothing regarding billing requirements. Basically the surplus magically appears from nowhere and it can cause you problems. It's even illegal in some countries.
This feature can be turned off (No) or enabled in two different modalities: Mode 1 and Mode 2. It's very important that you understand the difference between these modalities. Let's suppose that there's an Unpaid invoice of 10 EUR and that your client for some reason sends a payment of 25 EUR. Below you can see how the module handles overpayment of 15 EUR with the two modalities.
This mode should be used if you need to invoice the overpayment immediately. In many countries in fact you are not allowed to receive payments without invoices. The most obvious solution is to create a new and separate Add Funds invoice with an amount which is equivalent to the overpayment. The downside of this approach is that you create more invoices even when the overpayment is for example of just 0.01 EUR. It's not worth. That said, the module accomplish the same result without creating new invoices. It adds a new line on your existing invoice with this description Overpayment moved to credit balance (you can translate and customize this text by editing language files) and an amount that depends on your configuration.
If your Apply tax to credit feature is turned off (No), your invoice will be like this.
As you can see the overpayment is not taxed since you are not applying taxes to Add Funds invoices. In this way you clients don't risk to pay taxes twice. On the other hand, if your Apply tax to credit feature is turned on (Yes), your invoice will be different.
Since you are applying taxes to Add Funds invoices, your Add Funds item can't be different so the module automatically calculates the right amounts, subtotals and taxes. In both scenarios you clients will normally find the overpayment of 15 EUR in his credit balance.
This mode should be used in very particular scenarios like for example if you are using Kashflow integration on WHMCS. With this option, the module doesn't add anything on your invoice where there's no trace of the overpayment. There isn't anything even in transaction details where you can only find the transaction of 25 EUR changed to 10 EUR (total paid 25 EUR - overpayment 15 EUR = total due 10 EUR). The overpayment is normally moved to the credit balance of your client and a new transaction is added in WHMCS. This transaction represents the overpayment.
Long story short with this mode the invoice remains untouched. The only things that change are transactions. More in particular the instead of having a single transaction of 25 EUR (total due + overpayment) you have two separate ones: 10 EUR (total paid) and 15 EUR (overpayment).