Thursday, March 20, 2008

Microsoft Office Accounting Part 10- Receiving Customer Payments

MicroPodCast – Podcasts for Microsoft Office Accounting Users. Useful bookkeeping, software, and business tips for MS Office Accounting users, consultants, and business owners. Today's topic in our series of tips for MS Office accounting users is RECEIVING CUSTOMER PAYMENTS.

The customer payment form allows you to record payments received from customers and settle them against invoices as well as recording cash discount, write-off invoices fully or in part and settle credit memos against one or more invoices.

It is important to settle the individual invoices with payments, so you know which invoices have been paid and when. When an invoice is fully settled with a payment, it changes status to Paid. If an invoice is only partially settled, its status is Partially paid.

You should note the following:

-The most common practice is to pay the oldest invoice first to avoid finance charges for your customers, but Office Accounting allows you to allocate a payment to any invoice if you like.

-If the invoice has been set up with cash discounts (also known as early payment discounts (see below), and the invoice is paid in full (considering the discount) before the discount date, the cash discount will appear. The amount and the account may be edited (by clicking the link in the Cash Discount column).

-If the customer sent a check for part of the amount (e.g. pays $66.37 instead of $66.57), you can write off the remaining amount to fully settle the invoice (by clicking the link in the Write Off column).

-You can apply one or more credits (from customer credit memos, previous write-offs or journal entries) by clicking the link in the Applied Credits column.
If the customer payment isn’t settled with any invoices, it remains unapplied. A customer payment can also be partially applied or applied.

Cash Discounts

As mentioned above, you give cash discounts by setting a payment term on the invoice that allows a cash discount for early payment. Payment terms can be set up to be due after a certain number of days or at the end of the month/quarter/half year/year plus a number of days (e.g. if your invoices are due on the 15th of the following month).

The cash discount is set as part of the payment term, as the date where you will get a cash discount of a specified percentage (typically 1-2%) for paying your invoice early. Giving cash discount reduces the risk of customers not paying or paying late and it improves the cash flow of the business. However it does come at a cost. The effective APR of improving your cash flow this way could be quite high but it may be preferred over poor cash flow due to late customer payments.

Customer Payment Postings

-The customer payment will post to the underlying financial accounts. The customer payment will:

-Credit the customer on the accounts receivable account with the payment amount, the cash discounts and the write off amounts.

-Debit the deposit account with the paid amount.

-Debit the cash discounts given account with the cash discount amounts.

-Debit the write off account with the write off amounts.

Initially it may seem a bit odd that a customer payment of $490 can pay an invoice of $500 if 2% cash discount is given, but that is the way cash discounts works. You want to be able to compare the payment amount to what is deposited into the bank.

I hope these Microsoft Office Accounting tips are helpful. If you are using QuickBooks, check out our new QuickBooks series or visit The QuickBooks Gal podcasts.

Next Time: Recording Vendor Bills

If you have questions, drop me a line at info@custmbiz.com. I look forward to your comments and questions. Custom Business Solutions supports many software accounting packages such as QuickBooks and Peachtree as well as a variety of Point of Sales programs.