June 23, 2022
10 Accounts Receivable Best Practices for 2022
Maintaining an effective accounts receivable (A/R) management system is important duty of the bookkeeper that can help your business grow even if you expose yourself to the risks of selling goods and services on account. Creating an efficient A/R management process can be made easier by following some well-established practices—and we’ll take a look at 10, from sending invoices and utilizing sales orders to using invoicing software and monitoring A/R efficiency. 1. Send Invoices Within 48 Hours A sales or service invoice is an official document that requests payment from the customer. While you can request payment orally, issuing a formal invoice is better in case of future disagreements. Whenever possible, you should send your invoice within 48 hours after finishing work or delivering the goods. By sending invoices immediately, customers are likely to pay quickly since the service or product is still fresh in their minds. 2. Personalize Invoices Personalized invoices add aesthetic value to the invoice. However, adding your brand’s colors and design help your invoices stand out and promote your company. If customers can identify your invoices easily, they can also remember it easily and pay it as early as possible. Browse our 10 examples of great-looking invoices for inspiration in designing your unique invoice. 3. Have a Formal Credit Policy A credit policy is a form of control that protects your business from customers who don’t pay on time. Before you extend credit to customers, they must undergo a strict and formal vetting process. You must set requirements, terms, and conditions that would identify the good debtors. For example, you can set maximum credit limits to put a ceiling to the amount of purchases they can make on account. Along the way, you can increase credit limits based on the customer’s payment patterns. 4. Act Swiftly When Customers Miss a Payment Deadline When a customer misses a payment, you should give them the benefit of the doubt, but don’t be complacent. Generate an aging of accounts receivable report at least once a week to monitor the accounts that will come due or have become due. If an account is past due even just for a day, contact the customer immediately to discuss it with them. Collecting from slow-paying customers is an unpleasant task, but it only becomes worse the longer you wait. Oftentimes, missed payments can be resolved quickly with a timely phone call. In case the customer isn’t responding to your calls, you can send a collection letter by mail or email within 48 hours, whichever your customer prefers. In , there’s an option wherein it will send a payment reminder to the customer automatically if their account has been due after a specified number of days. 5. Utilize Sales Orders to Manage Orders Efficiently Sales orders help your employees check if the products awaiting shipment match the details and specifications of the customer’s order. Checking the sales order during order fulfillment helps prevent mistakes in preparing the goods for shipment. 6. Use Invoicing Software Using an invoicing software not only makes it quick and easy to create, send, and monitor invoices but reduces your workload. You can check our list of the best invoicing software for small businesses—some of these are free, so you might want to start with those to get a grasp of how the platforms work. 7. Integrate A/R With Accounting Software Be sure that whatever software you use to track and record A/R payments is integrated with the software that records deposits and reconciles your bank account. This will ensure that the A/R payments received agree with the checks deposited in the bank account. can handle both of these crucial functions. 8. Segregate A/R Duties One person should issue invoices and another should receive checks and apply them to outstanding invoices. In very small companies with only one bookkeeper, the owner should review all incoming checks and compare them to outstanding invoices before giving them to the bookkeeper. 9. Address Customer Concerns The primary reason customers don’t pay on time is because they aren’t satisfied with the service or product provided. Have a system in place to address their concerns by putting them in touch with the proper person, preferably not your A/R clerk as they may be ineffective since they generally aren’t involved in that part of the business. Client concerns need to be dealt with before any collection calls. 10. Monitor A/R Efficiency Use the A/R turnover ratio, the number of times you convert A/R into cash, to evaluate how effective your business is at quickly collecting A/R. Assume the A/R turnover during 2021 is 3.5. It means that we’ve collected A/R 3.5 times during the year. However, in 2022, the A/R turnover is 2.5. A higher A/R turnover is better, so we can say that the time to collect our A/R was worse in 2021 as compared to 2022. You should track how the turnover ratio changes over time as you implement new policies and procedures. What Is Accounts Receivable Management? A/R management is the process of extending credit to customers, issuing accurate invoices, and collecting timely payments from customers. It’s a set of policies and procedures that a company follows to manage credit sales. Managing A/R starts with credit evaluation and ends with the collection process. A sound A/R management system should have a uniform credit standard, industry-appropriate credit term, and collection program. Uniform Credit Standard A credit standard is a set of procedures used to evaluate the creditworthiness of a customer. It answers the questions, “which customer should be granted credit?” and “how much is the limit?” You should also consider the 5 C's of credit to determine if the customer passes the minimum criteria you set. Applying a uniform credit standard can avoid future problems with customers claiming they’re treated unfairly. Industry-appropriate Credit Term A credit or payment term usually has two components. The first is the cash discount, wherein you give a special discount to induce prompt payment. The second is the due date or the last day of the credit term. For example, you gave a customer a credit term of n/30. This term means that the customer can pay within 30 days or on the 30th day. In this case, some customers will maximize the credit term since there’s no reward for paying early. Hence, you can try adding an early payment discount to induce prompt payment. A term of 2/10, n/30 looks attractive since customers might want to get two percent off if they pay within 10 days. Be sure to consider payment terms that are being offered by your competitors so that you don’t lose sales by not offering a small discount. Also consider the payment terms given to you by your vendors. It might be difficult to offer your customers n/30 if your vendors are demanding you pay in 15 days (n/15). Collection Program An effective collection program will help you collect faster, providing you cash for other business needs. Collection programs involve sending periodic statements of accounts, calling customers to remind them of their outstanding invoices, sending collection letters, and hiring a debt collector or filing a collection suit as remedies of last resort. Aside from reducing the age of receivables, a sound collection program also reduces risk of default. If customers pay on time or earlier, you can utilize the cash payment to replenish stocks or settle trade payables. Collecting faster and earlier reduces the risk of defaults and losses due to bad debts. Bottom Line Managing A/R is challenging without a solid process to help you efficiently manage A/R transactions. Poor A/R management can lead to slow-paying customers and a lack of cash when you need it. With our accounts receivable best practices, you can improve your credit granting and collection process and serve your customers even better.
June 23, 2022
How To Transfer Funds Between Bank Accounts in QuickBooks Online
This guide will cover how to transfer funds in QuickBooks Online. We’ll show you how to record the transfer and then review or edit the transfer of funds in the bank account check register. You may need to frequently transfer funds between bank accounts in QuickBooks to track bounced checks, avoid overdraft issues, and maintain an accurate account balance. Note that this course is one of our many free tutorials on QuickBooks, which is our best small business accounting software. It’s more helpful if you follow along in your own QuickBooks account, so if you don’t have one, choose from a 30-day free trial or 50% off for three months. How To Transfer Funds in QuickBooks Online Step 1: Open the Transfer Screen Click on the + New button at the top of the left menu bar of your QuickBooks Online dashboard and then select Transfer from the far right column, Other, as shown below. How To Review & Edit Bank Transfers To review and edit a bank transfer previously entered, you must first find the transfer in your checking account register. Step 1: Open the Chart of Accounts To find the checking account register, hover over Accounting in the left menu bar and then click Chart of accounts. Why It’s Important to Transfer Funds Between Bank Accounts in QuickBooks Online Companies often have multiple bank accounts. For instance, they might have one checking account for payroll and a checking account for other activities. It’s important that you understand how to transfer funds in QuickBooks Online to ensure that you have an accurate account balance. Transfers not recorded could lead to inaccurate balances, overdrafts, and even bounced checks. Wrap Up Congratulations on completing our tutorial on how to transfer funds in . The next guide in our QuickBooks Online Training Course is How To Record a Bounced Check in QuickBooks Online, which will teach you how to reverse the deposit of a customer’s bad check, restore the accounts receivable from the customer, and record any associated bank fee. ← Previous Tutorial QuickBooks Tutorials Next Tutorial →
June 22, 2022
How To Set Up Messages in QuickBooks Online
In this tutorial, you’ll learn how to set up email messages for your customers in QuickBooks Online. First, we’ll cover how to set up your companywide default email message to accompany invoices and other sales forms. Then, we’ll show you how to override the default message with a custom message for your invoices, estimates, and sales receipts. This guide is part of our free tutorials on QuickBooks, our leading small business accounting software. If you don’t yet have a subscription, you can choose between a 30-day free trial and 50% off for three months. Step 1: Navigate To Your Sales Options From your QuickBooks Online company dashboard, click on the gear icon on the top right of the page, select Account and settings in the popup window, and then choose Sales in the left menu bar. Wrap Up You’ve learned how to set company-wide messaging options, including creating emails for invoices and other sales forms in . You also learned how to customize the default email settings for custom invoices, estimates, and sales receipts. The next guide in our QuickBooks Online course is How To Set Up Customer Statements in QuickBooks Online. This will cover a few options that are available for formatting the statements you send to customers. 🠜 Previous Tutorial Free QuickBooks Online Tutorials Next Tutorial 🠞
June 20, 2022
What Is an Invoice? Definition and Basic Components
An invoice is a document that you send to customers to request or collect payment for a good or service that has already been provided. The invoicing process starts when the business fulfills the order and delivers it to the customer. If you’re using , you can create invoices easily, send them to customers via email, and monitor payments as they arrive. Purposes of an Invoice Demand for payment: An invoice is an official notification for payment. When an invoice is issued, it signifies that you have provided the goods or performed the services. Among the most important of all best practices for managing accounts receivable is issuing an invoice within 48 hours of providing the goods or services. Business promotion: You can insert promotions or exclusive offers in invoices. If you have a customer loyalty program, you can talk about membership benefits and exclusive discounts. You can also insert special promotions like warehouse sales and discounts for bulk purchases. Charge disputes: Invoices provide the customer a detailed listing of what exactly they’re being charged for and provide them an opportunity to dispute the charges. Customers should be encouraged to raise any issues they find because the sooner you can smooth over any differences, the sooner you’ll get paid. Components of an Invoice Invoice designs may differ, but they must contain all basic components. We’ve listed the necessary invoice components below, but you’re free to add more line items. With QuickBooks Online, there are different ways to customize invoices like adding new line items or modifying the overall design. A. Company Details Your invoices should always include your name or your company’s name. State your business address and preferably your business email and phone number at the top of the invoice. You may also add your logo and colors for branding. In the sample invoice from QuickBooks Online, you’ll see an email address included below the company’s business address—and it’s important in case the payor of the invoice wants to dispute the invoice amount or details. Note that on QuickBooks Online invoices, you may even add logos and modify color schemes. B. Recipient’s Information As with your own contact information, you should likewise include all the same details of the recipient, so be sure to include the name of the client’s contact who handles your account. In our example above, we billed the invoice to Aaron Berhanu because he’s the point of contact for transactions with Maple Leaf Inc. C. Invoice Number & Due Dates Devise a unique numbering system for every customer and invoice. This will help both you and the customer to track the transactions. For instance, instead of saying, “That invoice I sent you last month,” you can note, “refer to invoice #9235.” Ensure you assign numbers to your invoices systematically just to keep everything in line. With QuickBooks Online, invoice numbers are auto-generated whenever you enter a transaction. The invoice due date must be displayed prominently in the invoice so that your customers can see them easily. In our example above, we can see the due date in between the total amount due and credit term. D. Terms It’s also critical to include the payment terms, including the due date and late payment fee. Having an explicit due date, rather than something general like “Due Upon Receipt,” will help with sending collection letters if that becomes necessary. Aside from payment terms, you can include cash discounts for prompt payment. Giving early payment discounts can speed up collection and reduce the likelihood of too much bad debts. A solid paper trail helps you in sending follow-ups or overdue notices and charging interest if the client hasn’t paid on time. It’ll also serve as a reminder to your customer of when they need to process the payment. E. Mode of Shipment You should specify the shipping carrier that will deliver the goods to your customer. Skip this field if shipment is unnecessary or if you’re a service provider. F. Sales Representative Customers can refer to the sales representative in the invoice in case they have questions about the product or service. You can also use this information to assess the performance of your sales representatives. G. Method of Payment Be clear on how your customers should pay you. Specify if they can pay via check, credit card, or other methods like PayPal. You can set up a payment link within QuickBooks Online in the Sales menu. For large projects, ask clients beforehand of their preferred payment method or come to an agreement about the payment method you both like. Then, provide all the necessary information about the agreed-upon payment method. For foreign transfers, you’ll need more than your account number, so make sure to include all the required details and indicate who will shoulder the transfer charges, if any. H. Itemized List of Services and Costs People always want to know what they’re paying for. Don’t use a general description such as “Design.” Tell your client exactly what they have received from you—and be as specific as possible. Include a breakdown of the goods or services that you provided and what you charged. Here’s a list to help you: Detailed description of the work or products provided Date the service was performed or when the product was ordered Number of products purchased or the number of hours you worked Product cost or your hourly rate/service charge Total price, including any delivery fees and taxes I. Notes section It’s a good idea to add a message box to your invoice template. You can note important account information, mention seasonal promotion details, or simply thank them for doing business with you. Read our article about entering invoice messages in QuickBooks Online and how you can use this section in many different ways. Frequently Asked Questions (FAQs) What is an invoice vs a receipt? While they may contain similar information, an invoice is a request for payment for goods and services provided, whereas a receipt is confirmation of payment by the customer. What is an invoice number? It’s a unique number generated and assigned to an invoice document. No invoice document should share the same invoice number. It can be a simple sequential numbering system or a specifically crafted number that combines customer account number plus a sequential number. For example, invoice number 2201-33 may pertain to invoice 33 of a customer with an account number of 2201. Is an invoice just a bill? The terms “invoice” and “bill” are two accounting terms that are often misunderstood. An invoice is a document that you send to customers to ask for payment, while a bill is a document you received from vendors requesting payment. In other words, what the sender refers to as an invoice is often called a bill by the customer. Bottom Line Invoices are an important request for payment sent to clients. Invoicing is an important process that provides confirmation to your customer of the products and services that have been provided and lets them know it's time for them to pay. With the help of accounting software programs like , you can reduce the clerical work in invoicing by letting QuickBooks Online send and record invoices. For other great invoicing options, see our guide to the best invoicing software.
June 17, 2022
What Is a Sales Order and How It Is Different From an Invoice
A sales order is a document that confirms the customer’s order and starts the order fulfillment process. When an order is placed, the business must check if it has enough inventory to fulfill it or adequate workforce and supplies to perform the service. If it can accommodate the order, the person in charge should make a sales order and send one copy to the customer as order confirmation and retain another copy as an internal document to initiate the order process. Unlike an invoice, a sales order isn’t a request for payment from your customer. It’s merely confirmation that the order has been accepted and is being processed. Once the order is processed and shipped, or the service provided, the customer will be issued an invoice requesting payment. Using sales orders to help manage your accounts receivable becomes increasingly important as your small business grows and communication between departments becomes more difficult. What Is the Purpose of a Sales Order? Sales orders aid your employees in fulfilling the customer’s order. It’s a vital document in the order management process because it should state exactly what the customer wants. If your business doesn’t have segregated departments, you may not need to create sales orders to keep everything organized. You can instead keep track of orders using accounting software like or a dedicated order management system. Initiator of the Order Process A sales order triggers the start of the order process. It’s the originating document that serves as a basis for all succeeding sales documents and important accounting entries. If you want to review transactions, the sales order will be the first document you’ll check. Basis for Extending Credit to Customers When a customer requests a sale on credit, the sales personnel prepares a sales order and sends it to the credit department for credit approval. The credit department personnel will evaluate whether the customer is qualified for a credit term. If this is a repeat customer, the personnel will review the customer’s payment history and patterns to determine the best credit term to grant. If you want to learn more about granting credit, you can read our article about extending credit to customers. Basis for Updating Inventory Records The quantity of inventory indicated in the sales order can be used as a basis for updating inventory records. The inventory quantity in the sales order should reduce the book balance of the inventory account or subsidiary records, if any. The sales order also helps the shipping department account for goods shipped to customers. Basis for Invoicing Once the goods have been packed and prepared for shipping, the approved sales order and bill of lading should be forwarded to the A/R clerk. If you provide goods and services outright, such as point-of-sale (POS) systems and receive payment immediately, there’s no need to prepare shipping documents and an invoice. You may directly issue an official receipt. For large transactions, the A/R clerk will review the approved sales order and bill of lading to ensure that the amount stated in the sales order complies with approved selling prices and that the goods shipped pertain to the items stated in the sales order. If the A/R clerk finds no discrepancy in the documents, the clerk will prepare the sales invoice that will be sent to the customer along with the bill of lading. Information To Include in a Sales Order As an essential document in the order management process, a sales order must contain all relevant information that will help you and your employees fulfill the order. Below is the required information: Company details Customer’s name or registered business name Shipping or billing address Itemized list of services or products purchased Selling prices before taxes Applicable sales taxes, delivery charges, and freight insurance Total amount due, including selling price before taxes plus taxes, delivery charges, and insurance Credit term Shipping term: free on board (FOB) shipping point or destination Customer deposits or down payments Applicable terms and conditions Current balance Payment terms or mode of payment Example Sales Order An approved sales order is the document that starts the order management process. It’s what will be the basis of succeeding documents like packing slips, bill of lading, and sales invoice. Below is a generic example: The key element of a sales order is the order number. In your accounting records, the sales order number will serve as the reference number that will be mentioned in succeeding documents and records. Other important elements are the quantity, part number, description, and price. These elements will help you and your employees in fulfilling the order by packing the correct inventory part number in the right quantity. Sales Order vs Invoice A sales order is a document that authorizes the sale and shipment of goods to the customer. On the contrary, a sales invoice is a request for payment. Once the customer receives an invoice, it means that the goods or services have been provided and the customer owes the business according to the payment terms of the invoice. Sales Order vs Quotes A quote or estimate is given to customers who are interested in buying your goods or services. At this point, you and the customer are still negotiating the price, scope of the service, or quantity and quality of the goods. An estimate is merely an offer and not a sales contract. Once you and the customer agree on the quote, then a sales order can be issued as confirmation of your newly formed contract. Sales Order vs Purchase Order A purchase order is a document that authorizes the purchasing department to purchase inventory for sale or supplies for office use. A purchase order isn’t part of the sales process, but rather a component of the purchase process. When you make a purchase order, you’re the one who’s buying goods whereas, in a sales order, you’re the one who’s selling goods. Bottom Line A sales order is a document that can help your business efficiently process orders. Creating sales orders can help you keep track of your orders and ensure that customer orders are fulfilled based on their specifications. However, it’s not a requirement for small businesses or solopreneurs. While a sales order can be sent to a customer to confirm an order, it isn’t a request for payment. You must send your customer an invoice to request payment.
June 15, 2022
How To Add, Reconcile & Delete Your Bank Accounts in Xero
This guide in our series of free Xero courses is going to cover how to connect your bank account and reconcile your account both with and without a bank feed. It’ll also show you how to view your bank reconciliation summary report and delete a bank feed that’s no longer needed. Our tutorials for Xero, which is named one of our best bank reconciliation software and leading small business accounting software, were created to help you get the most out of the platform. You’ll receive the most benefit by following along in your own account, so if you don’t have one, you may want to sign up for the platform’s free 30-day trial—no credit card required. Bottom Line You have now learned how to manage and reconcile bank accounts in . The next and final tutorial in our series of Xero courses is How to Create and Print Custom Reports, which will cover how to navigate to reports, what reports are available, and how to set basic options. Read our Xero Review to learn more about pricing and features.
June 15, 2022
How To Track and Pay Bills in Xero
In this tutorial, the third of our free Xero courses, we’re going to cover how to add vendors to your account. We’ll also look at how to pay bills in Xero as well as how to view, record, and manage them. We created our courses to help you understand how to use Xero better, one of our top-recommended small business accounting software. You’ll get the most out of this by following along in your own account. If you don’t already have one, you can sign up for a 30-day free trial with no credit card required. Bottom Line You have now learned how to manage and track unpaid bills in . The next tutorial in our Xero course is How to Add, Reconcile & Delete Your Bank Accounts. It will look at connecting your bank account, reconciling your account with and without a bank feed, viewing your bank reconciliation summary report, and deleting a bank feed that’s no longer needed. You can learn more about all the features offered in our review of Xero.
June 15, 2022
How To Manage Customers & Create Invoices in Xero
In this guide, the second in our series of free Xero courses, we’ll go over how to create an invoice in Xero and how to send one, as well as how to view open invoices and run an aged receivables summary report. We’re also going to cover how to add, view, and manage your customers. We created our tutorials to help you better understand how to use Xero, one of our best small business accounting software. You’ll receive the most benefit from this by following along in your own account. If you don’t yet have one, you can try the platform for free for 30 days, no credit card required. Step 1: View and Add Customers in Xero In Xero, contacts are arranged into All, Customers, and Suppliers contact groups, and you can access these by navigating to Contacts in the menu bar at the top of the page. When you add or import new contacts, they will automatically appear in the All group. Once you have entered an invoice, bill, or credit transaction for a customer, its classification will change to Customer or Supplier. You can’t move contacts manually into the Customers or Suppliers group, and if you see a contact name listed as “unknown,” it’s likely because this contact was created during cash coding and the payee field was left empty. To add a contact name to the payee field after the fact, edit it in the Contacts field. See more information about how to edit contact details below. Click on Customers to view your client list. Also shown are the company name, address, and contact info along with the amount you’re owed, if any. View and Update Contacts Select a customer name to view the details. In the example below, Hilltop Construction has one invoice awaiting payment. A report showing money received in the last 12 months is also displayed. To the right is a summary of the contact details. Add Contacts To add a new contact, click the New contact button in the upper right-hand corner. There are two sections that you’ll need to complete, Contact Information and Financial Details, which are discussed in more detail below. When adding a contact, you’ll want to enter as much information as possible, including: Contact Name Account Number Primary Person Email Phone, Fax, Mobile, and Direct Dial Skype Name/Number Website Postal Address Street Address In the Financial Information section, you can also enter default settings that will help with invoicing. All defaults can be overridden in individual transactions. These financial details include: Sales Settings: These settings include Tax inclusive, Tax exclusive, or No tax. You can also select a default income account for these sales. Purchase Settings: This is applicable for suppliers, not customers, so you can leave this blank. Tax: Enter the customer’s tax ID number and indicate which sales tax should be charged on sales. W-9 Business Classification: W-9s apply to vendors, not customers, so you can leave this field blank. Add to 1099 Contact Group: Form 1099s are never sent to customers, so you can leave this field blank. Credit Limit Amount: Indicate the credit limit you wish to extend your customer, if desired. Credit Limit Block: Choose whether you want to block sending invoices past the credit limit. Sales Discount: If you extend a sales discount to your customers, you can enter a percentage here. Currency: Select the default currency for this customer. Batch Payments: Indicate the bank account information if you expect to send batch payments. Invoice Theme: Select a default invoice theme for this customer. Bills Due Date: This field is for vendors, not customers, so leave it blank. Invoices Due Date: If you’d like to assign a regular due date for this customer, you can indicate it here. When you’re finished, be sure to click the Save button. Edit Contact Details To edit the contact details, follow these steps: Step 1: Click the Edit button in the upper right-hand corner. Step 2: Fill out the updated information. Step 3: Click the Save button. Bottom Line You have now learned how to invoice in and how to manage customers. The next tutorial in our Xero course series is How to Manage and Track Unpaid Bills, which will cover how to enter and view unpaid bills, how to record the payment of a bill, and how to add and view vendors. You can learn about this and other Xero features in our Xero Review.