How Can Contractors Recognize Financial Charges When Your Client Pays The Bank Directly?
When we work with home service pros, we see a lot of companies that end up needing to finance jobs for their customers.
Some companies will finance it themselves, but most will use an outside company to collect the payment so that they are paid upfront. Most of the time when this occurs, the finance company will remove a portion of the payment before it is released to you; however, you still want to recognize that in the invoice sent to our customer and show it on our books as both income and as an expense.
Almost any company can benefit from this. However, here at Waterford Business Solutions, we see the need for these bookkeeping services a lot of the time with HVAC companies that are selling a new unit, landscapers that are redoing a whole yard, roofers who are installing a new roof, or plumbers who have to completely replace a home’s piping system.
Recognize Bank Financial Charges
Step 1 -
In order to do this, we here at Waterford are first going to create a new service in Housecall Pro in your price list as a finance item that we will use on invoices going forward when there is a finance fee. Please keep in mind that this will show the finance fee broken out to the customer.
Step 2 -
Next, in QuickBooks, we are going to create two new accounts in the chart of accounts, one as an income account and one as an expense or cost of goods sold account. Both of these accounts will be identified as finance accounts. Back in Housecall Pro, we will create a job with the finance line item and go through our usual steps to complete a job.
Step 3 -
Once the job is finished, we will need to go back into QuickBooks under our products and services and remap the finance product to the finance income account.
Step 4 -
Finally, we will complete the transaction in QuickBooks by receiving a bank deposit. However, we are going to make a slight modification to allow the finance charge to be removed from the deposit. We will go down and “Add Funds” to the deposit receiving money from the finance company into the finance expense account you created and then put in the finance charge with a negative sign to map the expense directly towards the expense account and against the vendor.
- Please keep in mind that this method will only work if the finance company is paying you, not the customer paying you. Also, if you are using projects, this will not map the cost to a project, we will cover that in a later video and blog post.
To recognize Financial Charges can hold its challenges. If you need more information or want a step-by-step walkthrough, please watch the video below as it will explain exactly what to do, how it affects both Housecall Pro and QuickBooks, how it will show up on your financial statements, and the benefits of doing this.