This guide provides a comprehensive yet straightforward approach to using QuickBooks Online for managing your Accounts Receivable. We'll address common questions directly, offering detailed answers in simple language to help you master this essential business function.
What exactly is "Accounts Receivable"?
"Accounts Receivable" (often shortened to AR or A/R) is fundamentally the money owed to your business by your customers. It represents the value of goods or services you have already provided or delivered to customers, for which you have not yet received payment. In essence, it's the money that's "out there" waiting to come into your business.
Accounts Receivable arises when you extend credit to your customers. This means you allow them to purchase your products or services now and pay for them at a later date, according to agreed-upon payment terms. This is a common business practice, especially in business-to-business (B2B) transactions and service-based industries. Accounts Receivable is considered an asset on your balance sheet because it represents a future economic benefit – the expectation of receiving cash in the future.
Why is it so important to track Accounts Receivable in QuickBooks?
Tracking Accounts Receivable diligently in QuickBooks is not just good practice; it's essential for the financial health and operational efficiency of your business. It's important for several key reasons:
Accurate Income Recognition and Profitability: Proper Accounts Receivable management is critical for accurate financial reporting. It enables you to adhere to the accrual accounting principle. Accrual accounting dictates that you recognize revenue when it is earned (when the sale is made, goods are delivered, or services are rendered), regardless of when you receive the cash payment. By tracking AR, you record income at the point of sale, providing a true picture of your business's profitability during a specific period. Without AR tracking, you would be operating on a cash basis, which only recognizes income when cash is received. This can distort your financial statements, making it difficult to assess true business performance and make informed decisions about pricing, expenses, and investments. Accurate income recognition is vital for understanding your business's true financial health and making sound strategic decisions.
Effective Cash Flow Management and Forecasting: Accounts Receivable is a direct indicator of your future cash inflows. By diligently tracking your AR, you gain a clear understanding of how much money is owed to you and when those payments are expected to be received based on invoice due dates and payment terms. This knowledge is invaluable for cash flow forecasting. You can anticipate upcoming cash inflows and plan your expenses, investments, and debt management accordingly. Poor AR management can lead to cash flow shortages, even if your business is generating sales, because you might not have a clear picture of when and how much cash will actually be available. Proactive cash flow management is crucial for business sustainability and growth.
Improved Customer Relationship Management and Payment Collection: QuickBooks Online's AR features provide tools to organize and manage your customer payments systematically. You can easily identify overdue invoices, generate aging reports to see how long invoices have been outstanding, and send automated payment reminders to customers. This proactive approach to collections management can significantly improve your payment collection rates and reduce the time it takes to get paid. Furthermore, by maintaining clear records of customer balances and payment history, you can build stronger, more transparent relationships with your customers, fostering trust and reducing payment disputes. Efficient collection processes are vital for maintaining healthy cash flow and minimizing bad debts.
Comprehensive Business Performance Analysis and Financial Health Assessment: Analyzing your Accounts Receivable data provides valuable insights into the overall financial health and efficiency of your business operations. Healthy AR balances, where customers are paying within your established payment terms, indicate efficient sales processes and good customer payment habits. However, consistently high or rapidly increasing AR balances, particularly with a significant portion becoming overdue (aged AR), can be a warning sign. It might indicate issues such as: slow-paying customers, inefficient invoicing processes, errors in invoicing, customer dissatisfaction with your products or services, or even potential credit risks. Regularly reviewing your AR Aging reports (which categorize outstanding invoices by age – e.g., 30 days, 60 days, 90+ days overdue) is crucial for assessing your business's financial health, identifying potential collection problems early, and taking corrective actions. Monitoring AR metrics provides valuable data points for strategic business planning and operational improvements.
When should I use the Accounts Receivable workflow in QuickBooks Online?
The Accounts Receivable workflow in QuickBooks Online is essential when your business operates on a credit basis, meaning you extend payment terms to your customers. Specifically, use this workflow when:
Scenarios for Using AR Workflow:
You Invoice Customers for Goods or Services: Your standard business practice is to send invoices to customers after you have provided a service or delivered a product, expecting payment at a later date.
You Offer Payment Terms to Customers: You provide customers with a specified timeframe to pay their invoices, such as "Net 15," "Net 30," or "Due on Receipt" (but payment is still expected after invoice issuance).
Your Business is Service-Based: If you run a service-based business (e.g., consulting, contracting, professional services, agencies), invoicing clients after services are rendered and tracking Accounts Receivable is typically the standard operating procedure.
You Engage in Wholesale or B2B Sales: Businesses selling products to other businesses often operate on credit terms, making AR management essential for tracking these business-to-business transactions.
Your Work is Project-Based: For project-based work, you often invoice clients at project milestones or upon project completion, requiring Accounts Receivable tracking to manage these project-related payments.
When can I skip the Accounts Receivable workflow and record sales directly?
You can simplify your income recording process and bypass the full Accounts Receivable workflow when your business primarily operates on a cash basis, meaning you receive payment immediately at the point of sale. This simplified approach is suitable for:
Scenarios for Skipping AR Workflow (Direct Sales Recording):
Retail Businesses with Point-of-Sale (POS) Systems: Retail stores, shops, and businesses that primarily handle over-the-counter sales, where customers pay immediately using cash, credit cards, or debit cards at the time of purchase. POS systems often automatically record these immediate sales transactions.
Restaurants, Cafes, and Food Service Businesses: In these businesses, customers typically pay immediately after receiving their meals or services.
E-commerce Businesses with Upfront Payment Processing: Online stores where customers are required to pay for their orders using credit cards, debit cards, or online payment gateways before the order is fulfilled or shipped.
Businesses Primarily Handling Cash Sales: If a significant portion of your sales are paid for in cash at the time of transaction, you can often record these sales in summary without needing to create individual invoices and track Accounts Receivable.
(Please note that for guidance on recording these direct, point-of-sale sales transactions without using the full AR workflow, you should consult resources that specifically address cash basis accounting and direct sales recording in QuickBooks Online. This guide is focused on the comprehensive Accounts Receivable workflow. While these Accounts Receivable practices and workflows apply to most businesses, there may be exceptions based on specific industry practices, reporting needs, or operational preferences.)
What is the purpose of creating "Estimates" in QuickBooks Online?
Creating "Estimates" (also known as quotes) in QuickBooks Online serves as a formal way to provide potential customers with a price quote for your goods or services before a sale is finalized. Estimates are non-binding offers that are valuable for:
Purpose of Using Estimates:
Transparency and Customer Confidence: Estimates provide price transparency upfront, allowing customers to clearly understand the potential costs involved. This fosters trust and professionalism, making customers more comfortable proceeding with a purchase.
Sales Pipeline Management and Revenue Forecasting: By tracking estimates, you can gain insights into your potential future revenue based on quotes that have been sent out to customers. Analyzing estimate acceptance rates can help you improve your quoting process and sales forecasting accuracy.
Efficient Invoice Creation and Data Accuracy: Converting accepted estimates directly into invoices eliminates redundant data entry. Information from the estimate, such as customer details, product/service descriptions, quantities, and prices, is automatically transferred to the invoice, reducing the risk of errors and saving time in the invoicing process. This ensures consistency between your initial quote and the final bill.
Creating an estimate in QuickBooks Online is a straightforward process:
(Detailed Steps for Creating an Estimate):
Start a New Estimate: Click the "+ New" button, and under the "Customers" column, select "Estimate". This will open a blank estimate form.
Customer Selection:
Existing Customer: Use the "Customer" dropdown to choose from your existing customer list.
New Customer: Click "Add new" to create a new customer profile. In the "Add Customer" window, enter the customer's "Display name as" (e.g., "Mary Smith") and optionally add further details like address, phone number, and email. Click "Save" to add the new customer.
Estimate Numbering: QuickBooks Online automatically assigns a sequential estimate number (starting from 1001 by default). You can customize this number if desired, especially when initially setting up your system. For example, you might start with a numbering sequence like "2024-EST-001". Subsequent estimates will then follow this pattern (e.g., "2024-EST-002"). Consistent numbering enhances organization and professional appearance.
Estimate Date: Verify and adjust the "Estimate date" using the calendar dropdown. This date is the date the estimate is created and is important for tracking quote validity.
Products and Services Details: Scroll down to the "Product/Service" section to specify what you are quoting.
"Product/Service" Column: Select the relevant product or service item from the dropdown list. These items represent the goods or services you sell and should be pre-defined in QuickBooks.
"Quantity": Enter the quantity of the product or service being quoted.
"Rate": Specify the price per unit.
"Description": Provide a clear and concise description of the product or service in the "Description" field. For example, instead of "Services," write "Website Design - Initial Consultation" or "Product X - Standard Model". Detailed descriptions minimize customer confusion and potential discrepancies later.
Multiple Line Items: Use "+ Add line" to add more products or services if needed.
Inventory Products (QuickBooks Online Plus and Above): If you use QuickBooks Online Plus or higher, you can also estimate inventory products. QuickBooks will track estimated quantities against your inventory levels (if inventory tracking is enabled).
Optional Notes and Messages: Use the "Notes" field for internal notes related to the estimate (only visible to your team). The "Message to customer" field allows you to add a personalized message that will appear on the estimate document sent to the customer (e.g., "Thank you for considering us!").
Saving the Estimate: Click "Save" to save the estimate. By default, it will be saved with a "Pending" status, indicating it is awaiting customer acceptance.
Estimates in QuickBooks Online are initially in a "Pending" status. When a customer accepts an estimate, you need to update its status to "Accepted" and then convert it into an invoice.
(Steps for Managing Estimates and Conversion):
Locate the Estimate: Find the estimate you need to manage. You can usually locate estimates through the "Sales" tab > "All Sales", and then filter the transaction type to "Estimates".
Change Estimate Status to "Accepted": Open the estimate. Locate the "Status" dropdown and change it from "Pending" to "Accepted". This signifies that the customer has agreed to the quote.
Convert to Invoice: Once the status is "Accepted," a "Convert to invoice" button or link will appear prominently on the estimate. Click this button.
Invoice Creation from Estimate: QuickBooks Online automatically generates a new invoice using all the details from the original estimate (customer, products/services, quantities, prices, descriptions, notes). This automatic conversion saves time and reduces data entry errors.
Review and Refine the Invoice (Optional): While most information is carried over, you can still review and make adjustments to the newly created invoice if necessary.
Linked Transaction Indicator: Look for the green "Linked Transactions" indicator at the top and next to line items on the invoice. This visually connects the invoice back to its source estimate, providing an audit trail. Click these indicators to view the original estimate again.
Adjust Quantities or Details: You can edit the invoice further. For example, if the actual service time or product quantity differed from the estimate, you can adjust the "Quantity" field on the invoice. You can also modify descriptions or prices if needed, but significant price changes from the original estimate should be communicated to the customer.
Invoice Number, Date, and Payment Terms: Review and adjust the automatically generated invoice number if needed. Verify the "Invoice date" (typically the date of service/delivery) and set the "Terms" (payment terms) for the invoice, such as "Net 30" or "Due on Receipt."
SaasAnt enhances QuickBooks Online by enabling businesses to efficiently import, export, and modify estimates in bulk, streamlining the management of customer quotes and facilitating seamless conversion to invoices.
What is an "Invoice" in QuickBooks Online and why do I need to create one?
An "Invoice" in QuickBooks Online is a formal bill that you send to your customers to request payment for goods or services you have provided. Creating invoices is fundamental to the Accounts Receivable workflow because invoices:
Purpose of Creating Invoices:
Document and Formalize Sales: An invoice serves as the official record of a sale transaction. It details what was sold, in what quantity, at what price, and the total amount due.
Legally Request Payment: The invoice formally demands payment from the customer for the goods or services rendered, establishing a clear payment obligation.
Provide Payment Instructions: Invoices typically include essential payment information, such as payment terms (e.g., Net 30), due dates, and instructions on how the customer can make payment (e.g., accepted payment methods, bank details for wire transfers).
Enable Accounts Receivable Tracking: Invoices are the foundation for tracking Accounts Receivable. QuickBooks Online uses invoices to monitor outstanding balances, identify overdue payments, and manage the collections process. Without invoices, you cannot effectively track who owes you money and manage your AR.
You can easily create invoices directly in QuickBooks Online, even if you did not start with an estimate:
(Steps for Creating an Invoice Directly):
Start a New Invoice: Click the "+ New" button, and under the "Customers" column, select "Invoice". This will open a blank invoice form.
Customer Selection:
Existing Customer: Select the customer from the "Customer" dropdown list.
New Customer: Click "Add new" to create a new customer profile, as described in the Estimate section (II.A.3).
Invoice Number, Date, and Payment Terms: Configure these fields as you would when converting an estimate to an invoice. Set the "Invoice no.", "Invoice date", and "Terms" (payment terms) appropriately. Consistent invoice numbering and clear payment terms are crucial for professional invoicing practices.
Adding Products and Services: Scroll down to the "Product/Service" section and specify the items being invoiced.
"Product/Service" Column: Select the relevant product or service item from the dropdown list.
"Quantity", "Rate", "Description": Enter the quantity, price per unit, and a clear description for each item being invoiced.
Multiple Line Items: Use "+ Add line" to include multiple products or services on a single invoice.
Sales Tax (If Applicable): If you are required to collect sales tax, ensure sales tax is enabled and correctly configured in QuickBooks Online. When you select taxable "Product/Service" items on the invoice, QuickBooks will automatically calculate and add sales tax to the invoice total based on your tax settings.
Billable Time and Expenses (If Applicable): If you have been tracking billable time or expenses for this customer, QuickBooks Online will intelligently detect these unbilled items and suggest adding them to the invoice.
"Billable time" and "Billable expenses" Drawers: Look for drawers or panels on the right side of the "Invoice" screen labeled "Billable time" and "Billable expenses". These drawers list any recorded but not-yet-invoiced time or expenses for the selected customer.
Adding Billable Items: Click the "Add" button next to each billable time or expense entry you want to include on the current invoice. QuickBooks will automatically add these items as line items, pre-filling descriptions, quantities, and rates based on your time and expense records.
Saving and Sending the Invoice: Once you have completed all invoice details and added all necessary line items, you have several options for saving and distributing the invoice:
"Save": Saves the invoice in QuickBooks without sending it to the customer. Useful for drafting or reviewing invoices before sending.
"Save and send": Saves the invoice and immediately opens an email window within QuickBooks. The email is pre-addressed to the customer's email address (if available) and includes a link to view the invoice online. You can customize the email message before sending.
"Print or preview": Allows you to generate a PDF preview of the invoice for printing or review before saving or sending.
"Save and close": Saves the invoice and closes the "Invoice" window.
How can I effectively manage and track all my created invoices?
QuickBooks Online provides a dedicated "Invoices" section within the "Sales" tab to help you manage and track all your invoices efficiently.
(Steps for Managing and Tracking Invoices):
Access the Invoice Management Center: Go to the "Sales" tab in the left navigation menu, and then click "Invoices". This will take you to the main "Invoices" screen, which is your central hub for invoice management.
Invoice List View: The "Invoices" screen displays a list of all invoices you have created. This list is your primary tool for monitoring invoice statuses, tracking payments, and managing your Accounts Receivable.
Filtering and Sorting Invoices: Use the filters and sorting options at the top of the "Invoices" screen to manage and analyze your invoice data:
"Filter by Status": Use the status filter to view invoices based on their payment status. Key filters include:
"All Invoices": Shows all invoices, regardless of payment status.
"Unpaid": Shows only invoices that are currently unpaid, representing your Accounts Receivable.
"Date Range Filter": Filter invoices by date to view invoices created within a specific period (e.g., "Last Month," "This Quarter," "Custom Date Range").
"Customer Filter": Filter invoices by customer to see all invoices for a particular client.
Sorting Options: Click on column headers (e.g., "Invoice No.", "Due Date", "Amount") to sort the invoice list in ascending or descending order. Sorting by "Due Date" is particularly useful for identifying invoices approaching or past their due date.
Invoice Status Indicators: The invoice list displays the current status of each invoice, providing a quick visual indication of payment progress. Common invoice statuses include:
"Open": Unpaid and not yet overdue.
"Overdue": Past the payment due date.
"Paid": Fully paid.
"Partially Paid": Customer has made a partial payment, balance remains.
"Not yet due": Unpaid but still within payment terms.
"Amount Due" Summary: The top of the "Invoices" screen often displays a summary of the total "Amount Due" from all unpaid invoices, giving you a quick overview of your total Accounts Receivable balance. It may also break down the "Amount Due" into "Not yet due" and "Overdue" portions.
What is the purpose of recording customer payments in QuickBooks Online?
Recording customer payments in QuickBooks Online is a crucial step in the Accounts Receivable workflow. It serves to:
Purpose of Recording Payments:
Update Invoice Status: Recording a payment marks the corresponding invoice as "Paid" (if paid in full) or "Partially Paid," reflecting the current payment status accurately.
Reduce Accounts Receivable Balances: When you record a payment, QuickBooks Online reduces the Accounts Receivable balance associated with the customer and the specific invoice(s) being paid. This keeps your AR records current and accurate.
Maintain Accurate Cash Flow Records: Recording payments ensures that your cash flow statements and bank account balances in QuickBooks Online are up-to-date and reflect the actual cash inflows into your business.
Facilitate Bank Reconciliation: Proper payment recording, especially when using the "Undeposited Funds" workflow, is essential for simplifying bank reconciliation. It allows you to easily match payments in QuickBooks to deposits shown in your bank statements, verifying the accuracy of your financial records.
What are the different ways to access the "Receive Payment" screen in QuickBooks Online?
QuickBooks Online offers multiple convenient ways to access the "Receive Payment" screen:
(Accessing the "Receive Payment" Screen - Multiple Methods):
From the "+ New" Button (General Method): Click the "+ New" button, and under the "Customers" column, select "Receive payment". This opens a blank "Receive Payment" screen.
From within an Invoice (Contextual Method): Open the specific invoice the customer is paying. Click the "Receive payment" button at the top of the invoice or use the "Actions" dropdown and select "Receive payment". This method pre-fills the customer and invoice information, saving time.
From the Invoice List (Streamlined Workflow): Go to the "Sales" tab > "Invoices". Find the invoice in the list and click the "Receive payment" button directly next to the invoice. This also pre-fills customer and invoice details.
From the Customer List (Customer-Centric Approach): Go to the "Sales" tab > "Customers". Select the customer from the list. In the customer's transaction list, find the invoice. Click the "Actions" dropdown next to the invoice and select "Receive payment". This method starts from the customer's context.
What information do I need to fill out on the "Receive Payment" screen?
When you access the "Receive Payment" screen, you will need to provide the following key information:
(Completing the "Receive Payment" Form - Key Fields):
"Customer" Selection (If Starting Blank): If you started from a blank screen, select the customer from the "Customer" dropdown. QuickBooks will then display their outstanding invoices.
"Payment date": Enter the date you actually received the payment.
"Payment method": Select the payment method used by the customer from the "Payment method" dropdown (e.g., "Cash", "Check", "Credit Card").
"Ref #" (Reference Number): If applicable, enter a reference number, such as a check number, in the "Ref #" field. This is useful for tracking and audit trails.
"Deposit to" Account (Crucial Choice): This is a critical decision. Choose carefully between:
Bank Account: Select your bank account (e.g., "Checking Account") if you deposit payments individually and they appear as individual deposits in your bank statement.
"Undeposited Funds": Choose "Undeposited Funds" (or "Payments to Deposit") if you receive multiple payments and deposit them together as a lump sum. This is generally recommended for batched deposits and handling credit card fees later.
"Amount received": Enter the total amount the customer is paying at this time (could be full or partial payment).
Applying Payment to Invoices (Invoice Table): Review the table below listing the customer's outstanding invoices. QuickBooks often automatically applies the payment to the oldest invoices.
Verify Invoice Application: Ensure the payment is being applied to the correct invoice(s). Adjust the "Payment" column for each invoice if needed to reflect partial payments or application to specific invoices.
Full vs. Partial Payment: Verify that the "Amount received" matches the total amount applied to invoices in the "Payment" column.
"Memo" (Optional): Add a memo for internal notes if needed.
Save the Payment: Click "Save and close" to save the payment record and return to the previous screen.
Why do I need to record "Bank Deposits" in QuickBooks Online, especially if I'm using "Undeposited Funds"?
If you use "Undeposited Funds" when recording customer payments, recording "Bank Deposits" is the next essential step. This is because:
Purpose of Recording Bank Deposits (with "Undeposited Funds"):
Transfer Funds to Bank Account: The "Bank Deposit" transaction moves the customer payments from the temporary "Undeposited Funds" holding account into your designated bank account in QuickBooks Online.
Group Batched Payments: It allows you to group multiple individual customer payments together into a single deposit record in QuickBooks. This is crucial because bank statements often show deposits as lump sums, not individual payments.
Accurate Bank Reconciliation: By creating "Bank Deposit" transactions that match the lump sum deposits in your bank statement, you greatly simplify and improve the accuracy of your bank reconciliation process. It makes it much easier to match transactions between QuickBooks and your bank records.
Account for Bank Fees and Adjustments: The "Bank Deposit" screen provides a way to account for bank charges, credit card processing fees, or other items that might be part of your bank deposit but are not direct customer payments.
Recording a Bank Deposit from "Undeposited Funds" involves these steps:
(Steps for Recording a Bank Deposit):
Start a New Bank Deposit: Click the "+ New" button, and under the "Other" column, select "Bank deposit".
"Select the payments included in this deposit" Section: This section is key. QuickBooks Online displays a list of all payments currently in your "Undeposited Funds" account.
Select Payments for Deposit: Check the boxes next to each payment that was part of the specific bank deposit you are recording. As you select payments, the "Total deposit" amount at the top right will update. This total should match the deposit amount on your bank statement.
"Deposit date": Enter the actual date the deposit was made to your bank, as shown on your bank statement.
"Account to Deposit To": Select the correct bank account (e.g., "Checking Account") from the "Account" dropdown where the deposit was made.
"Add funds to this deposit" (Optional): Use this section to record items that are part of the bank deposit but are not customer payments from "Undeposited Funds". This is not for credit card fees (handled separately). Example use cases include recording bank interest earned or, in rare cases, bank service charges deducted from a deposit.
Verify "Total Deposit" Amount: Before saving, carefully verify that the "Total deposit" amount at the top right precisely matches the total deposit amount shown on your bank statement. This is critical for bank reconciliation.
Save the Bank Deposit: Click "Save and close" to finalize the bank deposit transaction.
When customers pay by credit card, payment processors charge fees. You need to record both the full customer payment and the fee in QuickBooks. Here’s the process:
(Steps for Handling Credit Card Payments and Fees):
Record the Initial Payment to "Undeposited Funds":
Use the "Receive payment" screen (Section II.C).
Select "Credit Card" as the "Payment method".
Crucially, choose "Undeposited Funds" as the "Deposit to" account.
Enter the full invoice amount in "Amount received".
Save the "Receive payment".
Record the Bank Deposit and Credit Card Fee:
Start a "Bank Deposit" transaction (Section II.D).
Select the credit card payment from "Undeposited Funds".
Set the "Deposit date" and "Account to Deposit To".
Account for the Fee: In the "Add funds to this deposit" section:
"Receive from": Enter the payment processor name (e.g., "Stripe", "PayPal").
"Account": Select your "Merchant Fees" or "Credit Card Processing Fees" expense account.
"Amount": Enter the credit card fee as a negative number (e.g., "-3.11").
Verify that the "Total deposit" amount now matches the net amount deposited into your bank (after fee).
Save the "Bank Deposit".
This two-step process ensures you record the full customer payment, account for the credit card fee as an expense, and have your QuickBooks bank deposit amount reconcile with your bank statement.
What are Bank Feeds in QuickBooks Online and how can they simplify Accounts Receivable?
Bank Feeds are a feature in QuickBooks Online that automatically connects to your bank accounts and downloads your bank transactions directly into QuickBooks. Think of it as QuickBooks automatically reading your bank statements for you. For Accounts Receivable, bank feeds can be a game-changer because they:
Benefits of Bank Feeds for AR:
Automate Transaction Entry: No more manually typing in every deposit or bank transaction. Bank feeds bring them directly into QuickBooks, saving you significant time and effort.
Streamline Payment Matching: Bank feeds allow you to directly "match" bank deposits that are downloaded from your bank to the corresponding invoices and customer payments you've recorded in QuickBooks. This can often eliminate the need to manually record "Receive payment" and "Bank Deposit" transactions for many customer payments.
Speed Up Bank Reconciliation: By making it easier to match bank transactions to your QuickBooks records, bank feeds make the bank reconciliation process much faster and more accurate. You can quickly identify any discrepancies and ensure your QuickBooks records are in perfect sync with your bank statements.
Using bank feeds to match customer payments to invoices is a streamlined process:
(Steps for Matching Bank Deposits to Invoices using Bank Feeds):
Connect Your Bank Accounts (Setup Bank Feeds): If you haven't already, connect your business bank accounts to QuickBooks Online's bank feed feature. Go to the "Banking" or "Transactions" tab in the left-hand menu and follow the on-screen instructions to connect your bank accounts. QuickBooks Online supports connections to a vast number of banks and financial institutions.
Access Downloaded Bank Transactions: Once connected, QuickBooks Online will automatically download your recent bank transactions. To view these transactions, navigate to "Banking" or "Transactions", then select "Bank transactions". You will see a list of downloaded transactions, categorized into "For review," "Categorized," and "Excluded" tabs. You'll primarily work within the "For review" tab to manage incoming bank transactions.
Find the Deposit Transaction: In the "For review" tab, locate a bank deposit transaction that represents customer payment(s) you need to record. Bank feed transactions are usually identified by descriptions like "Deposit," "ACH Deposit," "Teller Deposit," or similar wording.
Initiate Matching: Click "Find match" (Not "Categorize" or "Add"): Click on the specific deposit transaction to expand its details. Instead of choosing "Categorize" (for simple expense or income categorization without invoice linking) or "Add" (for just adding the transaction as income without connecting to invoices), it's crucial to click "Find match". This option is specifically designed for linking bank transactions to existing records like invoices and payments in QuickBooks Online.
Review and Select Matching Invoices on the "Match transactions" Screen: Clicking "Find match" will open the "Match transactions" screen. QuickBooks Online will intelligently attempt to suggest potential matches from your existing QuickBooks data, such as open invoices and recorded payments. It looks for transactions with similar dates and amounts to help you identify likely matches.
Verify Suggested Matches: Carefully review the suggested matches that QuickBooks presents. It is essential to confirm that these suggested matches are indeed for the correct customer(s) and correct invoice(s) that correspond to the bank deposit transaction in your bank feed. Never blindly accept suggested matches without verifying customer names and invoice details. Just because the dollar amount matches doesn't guarantee it's the right transaction.
Manual Invoice Selection (If Automatic Matching Fails or Requires Adjustment): If QuickBooks Online does not automatically find the correct matches, or if you need to match the deposit to multiple invoices, you can manually search and select invoices from the list provided on the "Match transactions" screen. Use the search bar, filters, or sort options to locate the relevant invoices.
Matching to Multiple Invoices: If the bank deposit represents payments for several different invoices from one or more customers, you can select all the corresponding invoices from the list. QuickBooks Online will sum the selected invoice amounts and compare the total to the bank deposit amount to ensure they match.
Finalize Matching: Click "Save": Once you have verified and selected the correct matching invoices, click the "Save" button. This action will automatically:
Link the Bank Transaction: Connects the bank deposit transaction from your bank feed to the selected invoice(s) within QuickBooks Online.
Record Payment Automatically: Creates an automatic "Receive payment" transaction in QuickBooks Online, effectively applying the deposit amount to the selected invoice(s). You won't need to manually create a "Receive payment" transaction separately.
Update Invoice Status: Changes the status of the matched invoice(s) to "Paid," reflecting their updated payment status.
Categorize Bank Transaction: Moves the bank deposit transaction from the "For review" tab to the "Categorized" tab, signifying that the transaction has been processed and reconciled.
Handling Credit Card Fees Within Bank Feed Matching (Advanced Technique): For credit card payments where processing fees are deducted before the deposit reaches your bank, you can even account for these fees directly within the bank feed matching workflow, further streamlining the process.
Scenario: Net Deposit Reflects Fee Deduction: When a customer pays via credit card, the amount deposited into your bank account will often be less than the original invoice amount due to the processing fee. Your bank feed will download this net deposit amount (after the fee).
Initiate "Find match" for the Net Deposit: Follow steps 1-4 above to locate the bank deposit transaction (net of fee) in your bank feed and click "Find match."
Select Matching Invoices (Gross Payment Amount): Select the invoice(s) that correspond to the gross customer payment amount (the amount before the fee was deducted). The total amount of the selected invoice(s) will likely be higher than the net deposit amount in your bank feed, creating a discrepancy. QuickBooks Online will recognize this difference and may display a warning or indication of a "difference".
"Resolve Difference" - Add Fee Adjustment: When you see a "difference," click on the "Resolve difference" button that will appear in the "Match transactions" screen. This action adds a new line item at the bottom of the screen specifically for making adjustments to reconcile the transaction.
Enter Credit Card Fee as Negative Adjustment: In the adjustment line item:
"Amount": Enter the credit card processing fee amount as a negative number. For example, if the fee is $3.11, enter "-3.11".
"Category": Select your "Merchant Fees" or "Credit Card Processing Fees" expense account from the dropdown list.
"Payee" (Optional): You can optionally enter the name of the payment processor (e.g., "Stripe," "PayPal") as the "Payee" for record-keeping.
Verify "Difference" Becomes Zero: After entering the negative fee adjustment, the "Difference" amount displayed should become zero. This confirms that you have accounted for the fee and the "Total matched" amount now precisely equals the net deposit amount downloaded from your bank feed.
Finalize and Save: Click "Save": Click "Save" to finalize the matching process. QuickBooks Online will then:
Match the bank transaction to the selected invoice(s).
Record the payment (for the net amount, after fee deduction) against the invoice(s), effectively marking them as paid (or partially paid if the net amount is less than the full invoice).
Simultaneously record the credit card processing fee as an expense, correctly categorized to your designated "Merchant Fees" or similar expense account.
By utilizing "Find match" and the "Resolve difference" feature within bank feed matching, you can efficiently process both customer payments and accurately record associated credit card processing fees in a single, streamlined step directly from your bank feed data. This significantly reduces manual data entry and improves the overall efficiency of your Accounts Receivable management.
Why is it important to track and bill customers for my time and expenses in QuickBooks Online?
For businesses that provide services or incur expenses on behalf of their clients, accurately tracking and billing for both time and expenses is crucial for:
Importance of Tracking Billable Time and Expenses:
Maximizing Revenue and Profitability: Ensuring that you capture and bill for all billable hours worked and all reimbursable expenses incurred prevents revenue leakage. By accurately billing for time and expenses, you maximize your revenue potential and ensure that you are compensated for all the value you provide to your customers.
Streamlining Invoice Creation and Reducing Errors: QuickBooks Online's billable time and expense features streamline the invoice creation process. Once you have tracked billable time and expenses, you can easily add these items to customer invoices with just a few clicks, eliminating manual data entry and reducing the risk of invoicing errors.
Improving Invoice Transparency and Customer Satisfaction: Providing customers with detailed invoices that clearly break down time charges and expense reimbursements enhances transparency and builds trust. Customers appreciate seeing exactly what they are being billed for, leading to fewer payment disputes and increased customer satisfaction.
Analyzing Project Profitability and Customer Profitability: Tracking billable time and expenses against specific customers or projects allows you to analyze project profitability and customer profitability. You can gain valuable insights into which projects are most profitable, which customers are most valuable, and identify areas for improving efficiency and pricing strategies. This data-driven approach to profitability analysis is essential for making informed business decisions.
Tracking billable time in QuickBooks Online involves these steps:
(Steps for Tracking Billable Time):
Start a New Time Activity: Click the "+ New" button, and depending on your QuickBooks Online version and settings, navigate to time tracking options under the "Employees" or "Other" column (e.g., "Timesheet," "Single time activity"). Select "Single time activity" (or "Timesheet" for more comprehensive time tracking if applicable to your business).
Employee/Contractor Selection: Choose the employee or contractor who performed the work from the "Employee/Contractor" dropdown. This step is important for businesses that need to track time for payroll, contractor payments, or internal cost allocation, in addition to client billing.
Customer Assignment: Select the customer for whom the time is billable from the "Customer" dropdown. This crucial step links the time entry to the correct customer, ensuring it will be available for invoicing that customer later.
Service Item Selection: Choose the appropriate "Service" item from the "Service" dropdown. The "Service" item represents the type of work performed (e.g., "Consulting Services," "Technical Support," "Design Work"). Using pre-defined service items ensures consistent categorization and pricing of your services.
Record Hours Worked: Enter the number of hours spent working for the customer in the "Hours" field. You have two options for recording time:
Direct Hours Entry: Type in the total hours worked directly (e.g., "2.5" for 2 hours and 30 minutes).
Start and End Times (More Detail): For more precise time tracking, click the "Start and end times" link. This expands the time entry form, allowing you to enter the specific start and end times of the work session. QuickBooks Online will automatically calculate the total hours based on the start and end times. Using start and end times can improve accuracy and provide a more detailed record of work activity.
Description of Work: In the "Description" field, provide a concise and informative description of the work performed. For example, "Website Design - Homepage Mockup," "Technical Support - Resolved Email Issue," "Client Meeting - Project Planning." Detailed descriptions on time entries are valuable for internal record-keeping and can be helpful if you need to review time entries later or provide time logs to customers (although time entry descriptions are typically not directly shown on standard invoices unless you customize invoice templates).
Mark as "Billable": Crucially, check the "Billable" checkbox. This is the essential step that flags the time entry as being eligible for invoicing to the assigned customer. If you forget to check "Billable," the time entry will not be available to add to customer invoices.
Billable Rate (Optional): If you need to bill the customer at a different rate than the default rate associated with the selected "Service" item, you can enter a specific "Billable rate" in the "Billable rate" field. If you leave this field blank, QuickBooks Online will use the default rate defined for the "Service" item.
Save the Time Entry: Click "Save and close" to save the billable time entry in QuickBooks Online.
Once you have tracked billable time entries, invoicing customers for that time is a seamless process:
(Steps for Invoicing Billable Time):
Create a New Invoice: Start creating a new invoice for the customer for whom you have recorded billable time entries, following the standard invoice creation process (Section II.B).
"Billable time" Drawer: When you select the customer on the invoice form, QuickBooks Online intelligently detects any un-invoiced billable time entries associated with that customer. A drawer or panel labeled "Billable time" (or similar) will automatically appear on the right-hand side of the invoice screen. This drawer lists all the pending billable time entries for that specific customer.
Add Billable Time to Invoice: Review the list of billable time entries in the "Billable time" drawer. Click the "Add" button next to each time entry that you want to include on the current invoice. As you click "Add," QuickBooks Online automatically adds the selected time entries as line items to the invoice.
Invoice Line Item Details: QuickBooks Online automatically populates the invoice line items based on the billable time entries, including:
"Product/Service" Item: The "Service" item you selected when recording the time entry.
"Description": (Often, depending on invoice template settings) The description you entered for the time entry may be included in the invoice line item description, providing detail for the customer.
"Quantity": The hours you recorded in the time entry.
"Rate": The billable rate (either the default service item rate or the specific rate you entered in the time entry).
"Amount": Automatically calculated based on the quantity and rate.
Finalize and Send Invoice: After adding all desired billable time entries, review the complete invoice for accuracy, make any necessary adjustments, and then "Save and send" or "Save and close" the invoice as you normally would.
To create multiple invoices you can use SaasAnt Transactions. It allows you to import invoices from spreadsheets.
Tracking billable expenses in QuickBooks Online allows you to record expenses you pay out-of-pocket for customers and then easily invoice them for reimbursement. Here’s how:
(Steps for Tracking Billable Expenses):
Record the Expense Transaction: When you incur an expense that you need to bill back to a customer, record the expense in QuickBooks Online using either the "Expense" transaction or the "Bill" transaction (depending on whether you paid for the expense immediately or received a bill to pay later). Access these transactions via the "+ New" button under the "Vendors" column.
Payee (Vendor) Selection: Select the vendor from whom you incurred the expense (e.g., "FedEx," "Office Depot," "Airline Company"). If the vendor is new, add them to your vendor list.
Payment Account (for "Expense" transactions): If using an "Expense" transaction, select the bank or credit card account from which you paid for the expense.
Expense Category: Choose the appropriate expense category from the "Category" dropdown. This classifies the expense for your accounting purposes (e.g., "Shipping & Delivery," "Travel Expenses," "Materials Costs").
Expense Description: Provide a clear and concise description of the expense in the "Description" field. For example, "Overnight shipping of documents for client project," "Materials purchased for website redesign project," "Airfare for client site visit." Detailed descriptions on expense records are essential for internal tracking and for providing itemized details to customers on invoices.
Expense Amount: Enter the total amount of the expense.
Mark as "Billable": Crucially, check the "Billable" checkbox. This is the key step that flags the expense as being reimbursable by a customer. If you miss this step, the expense will not be available for invoicing.
Customer Assignment: Select the customer who is responsible for reimbursing this expense from the "Customer" dropdown. This links the expense to the correct customer for invoicing.
Markup (Optional): The "Markup" field allows you to add a percentage markup to the expense amount if you want to charge the customer more than your actual cost (e.g., to cover handling or administrative fees). To simply pass through the expense cost at your cost, leave the "Markup" field at "0%" (or blank).
Save the Billable Expense Record: Click "Save and close" to save the billable expense record.
Invoicing customers for billable expenses is just as straightforward as invoicing for billable time:
(Steps for Invoicing Billable Expenses):
Create a New Invoice: Create a new invoice for the customer for whom you have recorded billable expenses, following the standard invoice creation process (Section II.B).
"Billable expenses" Drawer: When you select the customer on the invoice form, QuickBooks Online automatically detects any un-invoiced billable expenses associated with that customer. A drawer or panel labeled "Billable expenses" will appear on the right side of the invoice screen, listing the pending billable expenses for that customer.
Add Billable Expenses to Invoice: Review the list of billable expenses in the "Billable expenses" drawer. Click the "Add" button next to each expense entry that you want to include on the current invoice. QuickBooks Online will automatically add the selected expenses as line items to the invoice.
Invoice Line Item Details for Expenses: QuickBooks Online automatically populates the invoice line items based on the billable expense records, including:
"Description": The description you entered when recording the expense.
"Quantity": Typically "1" for expenses, representing a single instance of the expense.
"Rate": The expense amount (or marked-up amount if you applied a markup).
"Amount": The expense amount (or marked-up amount).
"Product/Service" Column (Note for Billable Expenses): As mentioned previously, the "Product/Service" column for billable expense line items may be blank or show a default value like "Bank." This is because billable expenses are technically reimbursements of costs, not sales of your standard products or services. While you can leave it as is, for reporting consistency, you may choose to create a generic "Reimbursable Expenses" service item and use that for billable expense invoice lines.
Add Other Items (Optional): You can combine billable expenses with standard services or products on the same invoice. For example, you can invoice a customer for both billable shipping costs and your consulting services on a single invoice.
Finalize and Send Invoice: After adding all desired billable expenses and any other line items, review the complete invoice for accuracy and then "Save and send" or "Save and close" the invoice as usual.
What are "Delayed Charges" and "Delayed Credits" in QuickBooks Online and when would I use them?
"Delayed charges" and "Delayed credits" in QuickBooks Online are powerful tools for flexible billing. They allow you to record charges or credits for customers in advance of creating actual invoices. This is particularly useful for:
Use Cases for Delayed Charges and Credits:
Batch Invoicing at the End of a Period: If you invoice customers in batches, such as at the end of each month or billing cycle, delayed charges and credits are invaluable. You can record charges and credits as they occur throughout the billing period without creating individual invoices immediately. Then, at the end of the period, you can efficiently generate invoices in bulk, incorporating all the accumulated delayed charges and credits. This streamlines your invoicing workflow and avoids a flurry of small invoices throughout the month.
Tracking Services Provided Over Time: For businesses that provide ongoing services, subscriptions, or services delivered over a period of time, delayed charges allow you to track the services provided as they are delivered. You can record a delayed charge each time a service is rendered, even if you only invoice the customer periodically (e.g., monthly). This provides a detailed record of service delivery and ensures accurate billing at the end of the billing cycle.
Pre-Recording Credits or Adjustments: If you know in advance that you need to issue a credit or make an adjustment to a customer's account (e.g., for a discount, a service issue, a price adjustment, or a promotional offer), you can record a "Delayed credit" ahead of time. When you later create the invoice for that customer, you can easily apply the pre-recorded credit, ensuring the invoice reflects the agreed-upon discount or adjustment.
Improved Billing Cycle Efficiency and Organization: For businesses with recurring billing cycles or periodic invoicing, delayed charges and credits enhance efficiency and organization. They separate the process of recording service delivery or credits from the actual invoice generation process. This separation allows for more flexible workflows, better control over billing cycles, and improved accuracy in periodic invoicing.
How do I create a "Delayed Charge" in QuickBooks Online?
Creating a "Delayed Charge" in QuickBooks Online is a simple process:
(Steps for Creating a Delayed Charge):
Start a New Delayed Charge: Click the "+ New" button, and under the "Customers" column, select "Delayed charge". This opens a blank "Delayed charge" form.
Customer Selection: Choose the customer to whom you want to apply the delayed charge from the "Customer" dropdown.
Date of Charge: Enter the date on which the service was provided or the charge was incurred. This date is important for historical record-keeping, even though the actual invoicing will happen later.
Product/Service Selection: Choose the "Product/Service" item that represents the charge you are recording from the "Product/Service" dropdown.
Charge Details: Enter the quantity, rate, and a clear and concise description for the delayed charge. Provide enough detail so that you and your customer can easily understand what the charge is for when the invoice is eventually created.
Save the Delayed Charge: Click "Save and close" to save the delayed charge record in QuickBooks Online. The charge is now recorded and associated with the customer, ready to be added to a future invoice.
How do I create a "Delayed Credit" in QuickBooks Online?
Creating a "Delayed Credit" is similar to creating a delayed charge:
(Steps for Creating a Delayed Credit):
Start a New Delayed Credit: Click the "+ New" button, and under the "Customers" column, select "Delayed credit". This opens a blank "Delayed credit" form.
Customer Selection: Choose the customer to whom you want to issue the delayed credit from the "Customer" dropdown.
Date of Credit: Enter the date on which the credit is being issued or is applicable.
Product/Service Selection: Choose the "Product/Service" item that is related to the credit from the "Product/Service" dropdown.
Credit Details: Enter the quantity, rate, and a clear description for the delayed credit. Explain the reason for the credit, such as "Discount for bulk purchase," "Credit for service issue," or "Price adjustment."
Save the Delayed Credit: Click "Save and close" to save the delayed credit record. The credit is now recorded and associated with the customer, ready to be applied to a future invoice.
How do I invoice customers for "Delayed Charges" and apply "Delayed Credits" to their invoices?
When you are ready to invoice customers for delayed charges and apply any delayed credits, QuickBooks Online makes it easy to incorporate these pre-recorded items into your invoices:
(Steps for Invoicing Delayed Charges and Credits):
Create a New Invoice: Start creating a new invoice for the customer who has delayed charges and/or credits recorded against their account, following the standard invoice creation process (Section II.B).
"Delayed charges" and "Delayed credits" Drawers: When you select the customer on the invoice form, QuickBooks Online automatically detects any pending delayed charges and delayed credits associated with that customer. Drawers or panels labeled "Delayed charges" and "Delayed credits" will appear on the right side of the invoice screen, listing these pre-recorded items.
Filter Delayed Items (Optional): Within the "Delayed charges" and "Delayed credits" drawers, you may find a "Filter" button. This allows you to filter the lists to show only delayed charges, only delayed credits, or both. Filtering can be helpful if you have a large number of delayed items and want to focus on specific types.
Add Delayed Charges to Invoice: Review the list of delayed charges in the "Delayed charges" drawer. Click the "Add" button next to each delayed charge you want to include on the current invoice. QuickBooks Online will automatically add these charges as line items to the invoice.
Add Delayed Credits to Invoice: Similarly, review the list of delayed credits in the "Delayed credits" drawer and click "Add" next to each credit you want to include on the invoice. Delayed credits will be added as negative amount line items on the invoice, effectively reducing the invoice total.
Finalize and Send Invoice: After adding all desired delayed charges and credits, review the complete invoice to ensure the amounts, descriptions, and combined total are correct. Then, "Save and send" or "Save and close" the invoice as usual.
When is it appropriate to use "Journal Entries" for Accounts Receivable adjustments in QuickBooks Online, and what are the risks?
"Journal Entries" in QuickBooks Online provide a powerful, but also potentially risky, way to make direct adjustments to Accounts Receivable balances. Journal entries should be used for AR adjustments only in specific, well-justified situations, and generally by accounting professionals or very experienced QuickBooks Online users who fully understand double-entry bookkeeping principles and the implications of journal entries.
Appropriate Use Cases for AR Journal Entries:
Writing Off Bad Debts: When an invoice is deemed uncollectible (e.g., customer bankruptcy, prolonged non-payment despite collection efforts), a journal entry can be used to "write off" the bad debt. This removes the uncollectible amount from your Accounts Receivable asset and recognizes the loss as a "Bad Debt Expense." Journal entries are often the most direct way to handle bad debt write-offs, especially for older, problematic balances.
Correcting Historical AR Errors (Use with Caution): In rare circumstances, you might discover errors in very old invoices that are difficult or impractical to correct by directly editing the original invoices (especially if those invoices are in closed accounting periods). A journal entry might be considered to make a direct adjustment to the Accounts Receivable balance to rectify these historical errors. However, this approach should be used with extreme caution and only when other methods are truly not feasible. It's generally better to correct errors by adjusting the original transactions if possible.
Advanced or Complex Adjustments (Consult an Accountant): In very complex accounting scenarios, journal entries might be used for bulk adjustments to Accounts Receivable, reclassifying balances, or making other sophisticated corrections. These types of adjustments are highly advanced and should only be undertaken with the guidance and oversight of a qualified accountant or bookkeeper who understands the specific accounting implications.
Risks and Warnings When Using Journal Entries for AR:
Potential for Errors and Financial Statement Distortion: Incorrectly created journal entries, especially those affecting Accounts Receivable, can severely distort your financial records. They can lead to inaccurate Accounts Receivable balances, incorrect income recognition, flawed financial reports, and potentially serious problems with audits, tax compliance, and overall financial management.
Loss of Audit Trail and Transaction Detail: Journal entries are by nature manual adjustments. They can sometimes obscure the detailed transaction history associated with invoices and payments, making it harder to track the original source of AR balances and understand the flow of transactions. Over-reliance on journal entries for AR management can reduce the transparency and auditability of your Accounts Receivable records.
Complexity and Accounting Expertise Required: Creating and understanding the impact of journal entries requires a solid understanding of double-entry bookkeeping (debits and credits) and accounting principles. Using journal entries incorrectly for AR adjustments can introduce significant errors if you lack this expertise.
Recommendation: Always exercise extreme caution when using journal entries to adjust Accounts Receivable. Whenever possible, utilize the standard QuickBooks Online AR workflow features (invoices, payments, credit memos, delayed charges/credits, bank feeds) to manage your Accounts Receivable. Journal entries should be reserved for specific, well-documented, and often complex situations where standard QuickBooks features are not adequate, and where you have the necessary accounting expertise or professional guidance. When in doubt, consult with a qualified accountant or bookkeeper before using journal entries for AR adjustments.
Can you provide an example of how to use a Journal Entry to write off a Bad Debt in QuickBooks Online?
Here's an example of using a journal entry to write off an old, uncollectible Accounts Receivable balance:
(Steps for Writing Off a Bad Debt using a Journal Entry):
Identify the Uncollectible Invoice and Customer: First, you need to determine which specific invoice(s) are truly uncollectible and identify the customer associated with those invoices. Review your Accounts Receivable Aging report (explained in Section X) to identify older, overdue balances that are unlikely to be recovered.
Start a New Journal Entry: Click the "+ New" button, and under the "Other" column, select "Journal entry".
Journal Entry Date: Enter the date on which you are recording the bad debt write-off. This is typically the date you make the decision to write off the balance.
Line 1: Credit Accounts Receivable (Reduce AR Asset):
"Account" Column: In the first row of the journal entry table, select "Accounts Receivable" from the "Account" dropdown.
"Debit" Column: Leave the "Debit" column blank.
"Credit" Column: Enter the amount you are writing off (the uncollectible invoice balance) in the "Credit" column. Remember that credits decrease asset accounts like Accounts Receivable.
"Description" Column: Enter a clear and informative description for this journal entry line, such as "Write-off of uncollectible balance for [Customer Name] - Invoice #[Invoice Number]".
"Name" Column (Crucial): In the "Name" column, select the name of the customer whose Accounts Receivable balance you are adjusting from the "Name" dropdown. This customer assignment is critical for QuickBooks Online to correctly link the journal entry to the customer's account and update their AR balance.
Line 2: Debit Bad Debt Expense (Recognize the Expense):
"Account" Column: In the second row of the journal entry, select an appropriate expense account to record the bad debt write-off. The most common and recommended account is "Bad Debt Expense". You may also see accounts like "Doubtful Accounts Expense" or "Uncollectible Accounts Expense". If you don't have a dedicated bad debt expense account, you may need to create one in your Chart of Accounts (Account Type: Expense, Detail Type: Bad Debts).
"Debit" Column: Enter the same amount that you credited to Accounts Receivable in the "Debit" column. Remember that debits increase expense accounts.
"Credit" Column: Leave the "Credit" column blank.
"Description" Column: Use the same description as in the first line (e.g., "Write-off of uncollectible balance for [Customer Name] - Invoice #[Invoice Number]").
"Name" Column: You can leave the "Name" column blank for the expense line or select the same customer name as in the first line, depending on your reporting preferences.
Balance Check: Debits = Credits? Before saving, always verify that the total debits in the journal entry equal the total credits. If debits and credits are not balanced, the journal entry is invalid and will not post correctly.
Save the Journal Entry: Click "Save and close" to record the journal entry. At this point, the journal entry has reduced your Accounts Receivable balance by the write-off amount and has recognized the bad debt expense on your income statement. However, the original invoice will still be listed as "Open" or "Overdue" in your invoice list and on customer statements.
"Apply" the Journal Entry to the Old Invoice (Counterintuitive Step): To fully remove the old, uncollectible invoice from your Accounts Receivable reports and customer statements, you need to perform a slightly unusual step: apply the journal entry to the old invoice as if it were a payment. This is a QuickBooks Online-specific workaround to link the journal entry to the invoice and update its status to "Paid."
Initiate "Receive payment": Click the "+ New" button and select "Receive payment" under the "Customers" column.
Customer Selection: Choose the same customer for whom you created the journal entry (e.g., "Old Customer").
Select Both Invoice and Journal Entry: QuickBooks Online will display a list of outstanding invoices and any unapplied credit memos or journal entries for this customer. Crucially, ensure that both the old, uncollectible invoice and the journal entry you just created are checked in the list of transactions.
"Amount received" Should Be Zero: The "Amount received" field at the top should automatically show "0.00". This is correct because you are not receiving any actual payment; you are using the "Receive payment" screen as a tool to link the journal entry adjustment to the invoice.
Save the "Receive payment": Click "Save and close".
Verify Invoice Status and AR Balance: After completing these steps, check your "Sales" > "Invoices" list and find the old invoice you wrote off. The invoice status should now be updated to "Paid" (even though no cash payment was received). Also, review your Accounts Receivable Aging report (Section X) to confirm that the balance for this customer and the written-off invoice has been removed from your Accounts Receivable totals.
What are Customer Statements and why should I send them to my customers?
Customer statements are summary documents that you send to customers to provide them with a clear overview of their account activity with your business. Customer statements are valuable because they:
Purpose of Sending Customer Statements:
Communicate Outstanding Balances Clearly: Statements explicitly show customers how much they currently owe you and which specific invoices contribute to that outstanding balance. This eliminates ambiguity and ensures customers are aware of their payment obligations.
Provide a Concise Transaction History: Statements list all relevant transactions that have affected a customer's account within a specified period, including invoices, payments received, credit memos issued, and any other adjustments. This gives customers a complete picture of their account activity.
Improve Payment Collection Rates and Timeliness: Regularly sending customer statements acts as a gentle reminder of outstanding balances. By providing customers with a clear summary of what they owe, you make it easier for them to track their payments and encourage timely payment.
Enhance Customer Service and Build Trust: Providing professional and informative customer statements demonstrates transparency and good customer service practices. It builds trust and confidence by showing customers that you are organized and proactive in managing their accounts.
Reduce Payment Disputes and Customer Inquiries: Clear and comprehensive statements can proactively address many common customer questions about their balances, payment history, and outstanding invoices. This can reduce the number of payment-related inquiries and disputes, saving you time and improving customer relations.
Creating and sending customer statements in QuickBooks Online is a straightforward process:
(Steps for Generating and Sending Customer Statements):
Access the "Statement" Creation Feature: Click the "+ New" button, and under the "Other" column, select "Statement". This will open the "Create Statement" screen.
Customer Selection: Choose the customer(s) for whom you want to generate statements:
Individual Customer: Select a specific customer from the "Customer" dropdown to create a statement for just that customer.
Multiple Customers: You can select multiple customers by holding down the Ctrl (or Command on Mac) key and clicking on customer names in the list.
All Customers: Choose "All Customers" to generate statements for all customers who have had activity within the specified date range.
Advanced Filtering (Optional): For more advanced targeting, you may be able to use customer tags or other customer data fields (if you have set them up) to filter the customer list for statement generation.
Choose the "Statement Type": Select the desired "Statement Type" from the dropdown menu. QuickBooks Online offers three main types of statements:
"Balance Forward": The most common type. Shows a beginning balance, all transactions during the statement period, and an ending balance. Ideal for a general overview of account activity.
"Transaction Statement": Provides a detailed list of all transactions within the date range, but without a beginning balance. Useful for showing complete transaction history.
"Open Item Statement": Shows only currently unpaid invoices and credit memos as of a specific date. Focuses on outstanding items needing attention and payment.
"Statement Date Range": Set the "Statement Date Range" to define the period the statement should cover. Choose from common ranges like "This Month," "Last Month," "This Quarter," or set a "Custom Date Range" to specify exact start and end dates.
Apply Settings: Click the "Apply" button to apply your selected customer(s), statement type, and date range. QuickBooks Online will then generate the customer statements based on your criteria.
Review Statements (Print Preview): Before sending statements to customers, it's always recommended to "Print or preview" the statements to review them for accuracy, clarity, and formatting. This allows you to ensure the statements are professional and contain all the necessary information before they are sent to customers.
Send Statements via Email or Print:
"Save and send": If you are ready to distribute statements electronically, click the "Save and send" button. This will typically open an email window within QuickBooks Online. The email will be pre-addressed to the customers' email addresses (if available in their profiles) and will include a link for customers to view the statement online or a PDF attachment of the statement. You can customize the email message before sending.
"Print": If you need to send statements via physical mail, click the "Print or preview" button and then print the statements directly from the preview window. You can then mail the printed statements to your customers.
Choosing the Right Statement Type: The best statement type to use depends on your specific business needs and your customers' preferences.
"Balance Forward": Generally the most versatile and widely used type, suitable for most customers and billing cycles.
"Transaction Statement": Useful when customers frequently need a detailed transaction history or when you need to provide a comprehensive audit trail of account activity.
"Open Item Statement": Effective for quickly communicating outstanding balances, prompting payment on overdue invoices, or for customers who primarily need to focus on what they currently owe. It can be helpful to experiment with different statement types and potentially solicit feedback from your customers to determine which format they find most clear and informative.
This comprehensive guide has provided you with a detailed yet practical understanding of how to use QuickBooks Online to effectively manage your Accounts Receivable. By following these steps and best practices, you can:
Ensure accurate and timely income recognition, leading to a clearer picture of your business's financial performance.
Improve your cash flow management and forecasting capabilities, enabling better financial planning.
Streamline your invoice creation and payment processing workflows, saving time and reducing errors.
Enhance communication with your customers by providing clear and professional invoices and statements, building stronger customer relationships.
Gain better control over your business finances, reduce bad debts, and drive increased profitability through efficient Accounts Receivable management.
Consistent and accurate use of the Accounts Receivable workflow in QuickBooks Online is a cornerstone of sound financial management and a key driver of long-term business success. By implementing these strategies and continuously refining your AR processes, you can build a financially healthy, well-organized, and customer-focused business.