"My Profit & Loss report tells me that I'm making a lot of money, but where is it?" This is a common question we get asked frequently. I usually tell that person to open their Accounts Receivable report. Accounts Receivable is one of those reports that can be scary the first time
it's opened. This shows the amount of money that the company has invoiced its customers for whom have not paid yet. In accrual based reporting, these amounts show up on the Profit & Loss and have a major impact on the bottom line. Streamlining your invoicing process can eliminate having a wrong AR report. Also, streamlining the process in which your customers pay your company can reduce your AR balance and make your cash flow much more predictable.
Impact On Financials
Depending on who has their hands in the company's QuickBooks file, invoices and customer balances can get royally screwed up. We all know some business owner or manager that is brilliant at certain aspects of the business, but accounting and computers aren't two of them. They tend to get in QuickBooks and think they are doing something the right way and that couldn't be further from the truth. The result could be a Profit & Loss report that looks fantastic because revenues are so high, while the reality of it is that the invoices were falsely created and never deleted. Imagine creating an invoice for $10,000 and not deleting it. This $10k could make the financials for that month look amazing, but the money is never going to get paid to the company, and never make it to the company's checking account.
If you aren't certain this is happening within your company, you can start by opening the Accounts Receivable report. This is easily done by clicking on the Reports option on the top menu bar; then click 'Customers & Receivables' followed by 'A/R Aging Summary.' This will show the balance for each customer broken out by the days past due. Depending on the size of this AR report, you may want to adjust the 'Intervals' and 'Through' days to dive deeper into your financial reporting. This is a good starting point for straightening out your AR issue. Now you can see who was invoiced, when it was created and for what item and amount. All this is accomplished by clicking on the amounts and going further and further into the detail. With this info, you can start holding people within your company accountable. Once you start researching these balances, the system should hopefully iron itself out so this painful process doesn't happen again.
Improve Collecting Money
There are several ways for customers to pay invoices these days. Sure, everyone would like to get paid in cash, but those days are long gone. Credit cards, checks, PayPal, to name a few, are all ways that people pay their balances these days. Having a strong bookkeeper makes certain that these payments are properly allocated to the open invoices. If not, income could be showing up as double booked based on accrual reporting and the owner could be in for rude awakening come tax time. Almost all taxes are filed on cash basis reporting. The goal is to be able to switch from accrual to cash reporting and not be surprised by the major changes. Otherwise, your world could get thrown upside down when you think you are posting a profit on the year and end up doing the exact opposite.
One new product that seems like an amazing deal is using Intuit Payment Network. The costs associated with this are so low it's pretty much free. You are now able to insert a link on each invoice that is emailed from QuickBooks and the customer can now pay direct via their bank account. By using the direct bank pay, the costs to your company are $.50 per transaction. I have seen this method implemented and some businesses are getting 4 or 5 figure payments and it's only $.50 each time. It's almost too good to be true. There is another option to allow payments to be submitted via credit card, but there is a flat rate of something like 3.25%.
Sure, almost each method your business receives money has a small fee associated with it, such as a credit card processing fee. As the owner or manager, you must decide if you would rather have the money be sitting in your bank or sitting on your AR report. Credit card fees are easily shopable. Ask your bookkeeper if your CC processing rate is above 3%, and if it is, ask them for a referral to a merchant processor and get that rate lowered. Don't have a bookkeeper to ask or a bookkeeper that is well networked? Let's talk and get to the bottom of your Accounts Receivable issue.