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Applying Finance Charges in QuickBooks

January 16, 2019

Many small business owners hate the idea of adding finance charges to late payments. But, the fact of the matter is that this will improve your cash flow over the long term.

Faster Payments and Better Cash Flow

QuickBooks Online provides the tools to help with several ways to encourage faster customer payments.

• Open a merchant account and have your customers make electronic payments

• Provide a discount when payment is early

• Make the cycle for payment due shorter (such as 22 days instead of your usual 30)

• Get more aggressive with collections

Use QuickBooks to help you with any of these steps. And QuickBooks also offers a fifth choice which is to assess a finance charge for late payment.

Many business owners are concerned that they will drive away customers by doing this, especially the most-valued ones. However, you are not a bank and lending money is not your business. For those who do lend money, charging interest is a standard practice and this includes penalties for late payments.

In fact, many business owners come to realize that the late-payer can become non-payers and then you have been giving away your products and services for free. Assessing finance charges for late payments has the effect of sorting out the paying clients from those who are costing you money. So, don’t let your accounts receivable go unpaid. Here’s how do modify your payment policies in QuickBooks and add finance charges.

Several Issues to Deal With

The first step before you begin to add finance charges to late payments is to tell QuickBooks how you need them dealt with.

Open the Edit menu. Choose Preferences. Click the Finance Charge tab which is on the vertical pane on the left. Next, open the Company Preference tab.

This image is an example of what you will see.

Adjust your finance charge settings before you begin to apply fees to late payments.

You will decide on the Annual Interest Rate you will charge and you will have a Minimum Finance Charge. Will you provide a Grace Period? This may all be new territory for you. If you find yourself at a loss for how to answer these questions contact us and we will be pleased to walk you through it. For example, you need to choose the correct Finance Charge Account. In the example, QuickBooks used the default 70100 - Other Income. This may or may not be what is right for you.

Next, you may need to do a little research. Does your jurisdiction Allow You to Assess Finance Charges on Top of Overdue Finance Charges? You need to find out or ask us to find out for you. If you are not absolutely sure that you can do this make sure that the box for this option is not checked!

Then you need to choose the date to begin calculation of finance charges. Should it be the due date or should it be the invoice/billed date?

And, last of all; make sure to check the box for Mark Finance Charge Invoices “To be printed.” The finance charges will not be included on the invoices but QuickBooks bills them separately. Check this box when you desire QuickBooks to print all as a batch.

Click OK when you are finished.

Apply Finance Charges

When you choose an Assessment Date you are instructing QuickBooks as to how many late days to include in finance charge calculations.

Go to the Customers menu and choose Assess Finance Charges. The window you see will resemble the image above. While QuickBooks will do all of the necessary calculations it needs to have an Assessment Date in order to determine the number of late days to include in finance charges. The default date may not be the one you want, so make sure that you enter the correct date before going any further.

Next simply be sure that you have checked each finance charge that you want to be invoiced. They should already be entered but you will want to double check to be sure.

Clear out the checkbox in front of Mark Invoices “To be printed” if you send statements. Then the finance charges will show up on the next statement. When you are sure everything is in order, go ahead and click Assess Charges. QuickBooks has now recorded these charges as individual invoices. When you are ready to print you can open the File menu and choose Print Forms/Invoices. What you will see are numbered finance charges invoice similar to those displayed in the image.

You will see your finance charge invoices look like this when you go to print them. And if you send invoices by email you will click File/Send Forms.

Notify Your Customers about This Change in Policy

A wise idea is to notify all of your clients before you send them invoices with finance charges. This may get some of them to catch up on their bills in order to avoid charges. And, no one will be surprised by these invoices.

The background calculations are done by QuickBooks but you need to have this set up correctly for QuickBooks to generate the correct invoices. Let us know if you have questions and we can help with this specific problem or with more extensive QuickBooks training as required.

If you have any questions or problems please contact us so that you do not anger any of your good customers with minor errors in how you set this up. We can help you get it right and help you speed up payments.

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QuickBooks Online

QuickBooks Online is a cloud-based multi-functional accounting software suite aimed primarily at small and growing businesses. Its versatile framework makes it easy for users to manage and oversee a wide range of accounting tasks, including monitoring cash flow, reviewing transactions, categorizing expenses, checking invoice statuses, and staying on top of payroll and inventory.
Profit First helps you experience profit.

Ronald B. Allen
CEO, Profit First Professional, Fix This Next Founding Advisor
Principle of an accounting firm that’s committed to educating business owners on their financial health, providing a trans-formative strategy and helping them experience their profit!