QuickBooks QuickTip: Keeping Track of A/R

What do most entrepreneurs dread more than bookkeeping? Calling a client to find out if they’ve paid an invoice or not.

Small business owners send out dozens of invoices a month (a food producer or farmer who sells wholesale, a consultant like me, or catering company), it can be difficult to track who’s paid and who hasn’t without a good system in place. If you send a client multiple invoices a month (like many farmers and corporate caterers do), this can be even more difficult: they may have paid some but not all, and you have to keep track of which one. In fact, that happened to me recently – I had sent 5 invoices to a single client (one for each project), and when the payment came, it was not for the full amount of all 5 invoices. If I wanted the client to pay the full amount, I needed to let her know which ones were outstanding.

Too often, the entrepreneur doesn’t pay attention to whether a specific invoice is paid; they just deposit the checks into their bank account. But there will come a time when you’re short on cash or just catching up on your bookkeeping, and need to track down unpaid invoices.

If you’re not keeping good records, you risk embarrassing yourself… you call a client you think hasn’t paid, and you find out that they actually paid you months ago. Or maybe you don’t call the client at all because you’re embarrassed that you don’t keep better track. You play out the conversation in your head: “Um, I can’t remember… did you pay that invoice or not?” Rather than make the phone call, and risk a bruised ego, many small business owners forgo the payment altogether.

With effective bookkeeping, you can avoid all this embarrassment and improve the chances of being paid (sadly, there will always be clients who don’t pay).

1. Here’s an overview of the process in QuickBooks:Create an invoice (you can do this from the home screen or customer center), and be sure to set the terms of when the customer owes you payment. Terms will help QB keep track of overdue invoices.
2. When the payment comes in, receive the payment. This lets QB know that the invoice was paid, regardless of whether or not the check was deposited.
3. After the payment is received you can then deposit the payment into your bank account and note that deposit in QB.

Note: if you don’t create an invoice then don’t receive payment. These two functions work in tandem, and if you do one and not the other, then whacky things will happen. If you create an invoice, you must receive the payment before you record the deposit. If you receive payment from a client without first creating an invoice, then you can just record the deposit. This is important.

If you properly create invoices and track payments, then you can easily see who owes you and assess finance charges (or fire) late paying clients.

• The A/R Aging Summary (Reports > Customers and Receivables > A/R Aging Summary) has a wealth of information:Customers who have amounts listed in the “Current” column are still within the grace period.Let’s say, you send an invoice on September 30, and the customer has 30 day terms. If you check the A/R Aging Summary report on October 12th, the customer will be listed in the current column. Customers listed in the 1>30 column and beyond are late paying you.
• Presumably, your customers pay on time, so you know how much money you can expect to receive in the next few weeks.
• But not all customers do pay on time, and this report lets you know which customers have outstanding invoices, and how late they are in paying you.
• For late payers, you can see how late they are in paying, and which clients you need to follow-up and assess finance charges if necessary.
• Some of your clients may consistently pay late. Depending on the make-up of your client base, this can be harder to intuit. You can figure this out by going to the Reports > Customers and Receivables > Average Days to Pay Summary. If you record when you invoice and when you receive payment then, this report will also be accurate. Knowing how long it takes customers to pay can inform other decision:Do you want to assess finance charges on late payers?
• Do you want to fire clients that take too long to pay?

When customers take too long to pay it can wreak havoc on your own cash flow. You want to discourage that behavior; and late payment fees is one way to do that. Similarly, you have limited capacity (you can only grow so many cases of arugula or service so many catering clients); and you want to make sure your servicing your best clients. One way to understand who the best is, is to know how quickly they pay you.

In short, effectively tracking invoices and payments helps you to better manage your cash flow and ensure your clients pay on time.

Need more QB Quick-tips? The Farmer’s Office is chock full of QB tips and other tools to better help you manage your business by the numbers.