Should You Charge Late Fees? QuickBooks Can Help

 Do you have a lot of aging receivables? Assessing finance charges can speed up customer payments.

Have your customers been submitting payments later than usual these last several months? It wouldn’t be surprising. Many businesses are struggling to pay bills these days. Still, you need to get paid – and on time. Tardy receivables have a negative impact on your own cash flow.

We’ve discussed ways to encourage prompt payment in past columns. For example, you can start accepting credit/debit cards and direct bank transfers, make sure invoices go out immediately after a sale, or offer a premium like a small one-time discount for paying on time 12 months in a row to name a few.

You can also assess finance charges on remittances that come in after the due date. QuickBooks provides the tools to allow this.

Setting It Up

Before you start charging extra for late payments, you’ll need to do some setup work in QuickBooks. Open the Edit menu and select Preferences, then Finance Charge. Click the Company Preferences tab. You’ll see a window like this:

You can set your own preferences for assessing finance charges in QuickBooks.

You’ll have to answer these questions and enter your responses in the window:

What will your Annual Interest Rate (%) be?

What will you set as a Minimum Finance Charge?

Will you allow a Grace Period? This is the number of days given to your customers to make their payments after the due date before finance charges kick in. This is typically from 15-21 days.

Where should captured finance charges go? In this example, the Finance Charge Account has been assigned to Other Income. 

Do you want to Assess finance charges on overdue finance charges? Some jurisdictions don’t allow you to charge interest on overdue interest charges. If you want to do this, check on your local lending laws - specifically state usury laws which may limit the amounts that can be charged.

When will you start to Calculate charges? In this example, the due date is selected. So, QuickBooks will start to add finance charges 21 days after the stated due date. If you choose invoice/billed date, you’ll want to make your grace period longer. This can be rather a confusing concept. Contact us if you want a deeper explanation.

Assessing Finance Charges

There’s one more issue on the Preferences screen that you’ll need to resolve. QuickBooks offers two ways to notify customers about finance charges. You can’t include them on invoices, like you may be used to seeing on credit card bills. Rather, you have to print separate invoices that only contain the finance charges. 

If you put a check in the box in front of Mark finance charge invoices “To be printed,” you can print them out separately. If you leave the box blank, the finance charges will appear on the customer’s next statement. Click OK when you’re done with this window.

QuickBooks can find the overdue invoices that need to have finance charges applied and display them in a window like this one.

Open the Customers menu and select Assess Finance Charges. A window like the one in the image above will open. Make sure that the Assessment Date is the actual date you want to assess charges, which may not be the current date. Click in the Assess column to create a checkmark for every customer you want to charge. When you’re done, click Assess Charges.

When you’re ready to print finance charge invoices, open the File menu and select Print Forms | Invoices to open a window like this:

Invoices with an FC preceding the number are finance charge invoices ready for printing.

Lots to Learn

Besides knowing whether you can charge finance charges on existing finance charges, there are other considerations. For example, do your state’s lending laws allow you to use the phrase “finance charge” or must you use something like “late fee?” When should you assess finance charges? Have you notified your customers of your intent to begin assessing finance charges? This is definitely something they should know in advance. You might need to add this to your customer message on invoices.

We can’t tell you whether finances charges are the path you should take to improve your cash flow as there are many issues to consider. But we can help you with the mechanics of doing so and are here to answer any questions. Let us know if you want to get started using this tool, we can help.

How to Create Recurring Transactions in QuickBooks Online

 QuickBooks Online saves time and improves accounting accuracy in numerous ways. One example is its support for recurring transactions.

It’s easy to get distracted when you’re doing dull, repetitive accounting work. That distraction leads to errors sometimes. So, besides the time you’re spending on work that could be automated, you have to tack on additional time to chase down your mistakes.

QuickBooks Online already reduces repetitive data entry by saving your lists of customers, vendors, products, etc., and making them accessible when you’re creating transactions. But it does more to save time and minimize errors by allowing you to create recurring transactions. Enter a transaction like an invoice or bill once, and QuickBooks Online memorizes it for future use!

Here’s how it works. Let’s say you have a customer who wants to rent a printer from you for one year. You create an invoice for one month’s rental. At the bottom of the screen, click Make recurring. A partial view of the screen that opens is pictured below.

QuickBooks Online allows you to set up a transaction to repeat at scheduled intervals.

Much of this screen will have already been filled in. You’ll need to enter a name for the template you’re creating at the top of the screen, one that will remind you of its content. In the second field, the drop-down list displays three options for how the recurring transaction will be handled by QuickBooks Online They are:

• Scheduled. Your invoice will go out automatically at the scheduled interval, with only a change to the date. As with any automated process, you should be very careful when selecting this option.

• Reminder. You will get a reminder ahead of each occurrence so you can make any necessary changes before sending.

• Unscheduled. No automation is involved here. The invoice is memorized, but you’ll have to remember when it needs to go out.

If you chose Reminder, the next field will read Create (x) days in advance. Enter the number of days here. On the next line, you’ll only have to check or uncheck the Options. 

Under Interval, you’ll tell QuickBooks Online when the invoice is scheduled to go out. You can choose from Daily, Weekly, Monthly, and Yearly. The invoice in this example should be processed and sent on the first day of every month. The start date is January 1, 2021, and it will end on December 31, 2021. If your recurring transaction should continue to go on indefinitely, you’ll have the option to select None from the drop-down list under End. You can also choose After.

Check the fields below this line to make sure they’re correct. You can change the message if you’d like and add an attachment. If everything looks correct, click Save Template in the lower right corner.

Using Recurring Transactions

If you’ve set this transaction up to recur automatically, you don’t have to do anything more with it unless you need to edit it at some point. If you need to do so, or if you’re responding to a reminder (or chose not to be reminded), you can access the list of transactions you’ve memorized by clicking the gear icon in the upper right and selecting Recurring Transactions under Lists. A screen containing this section will open:

Once you’ve created recurring transactions, you have several options for managing them.

The table that appears will contain other columns describing the recurring transactions, like Type and Interval. The image above shows the end of each row that reads Edit until you open the drop-down menu. You can see what your options are. They include Use, which you would select when you want to edit and/or send a transaction. You can also create a Duplicate, Pause the recurrences temporarily, Skip next date, or Delete the template. Click the arrow next to Reminder List in the upper right and select Run Report to see the Recurring Template List Report.

As you can see, recurring transactions can not only save time, but they can also help reduce errors and minimize unnecessary work. They’re not overly difficult to create, but you should use caution if you choose to automate them. We’re available to answer your questions about this useful tool and about any other element of QuickBooks Online. Stay healthy, and here’s to 2021!