Business owners who offer credit sales understand that at some point, an account may become past due. While it’s unfortunate, not all customers may pay in a timely manner. It is important to understand when an account is simply overdue and when it has become completely uncollectible.

Depending on the terms that a business offers, payment may be due upfront, upon delivery of goods or services, or within a certain time frame after goods and services have been delivered. It is common practice for businesses to offer customers extended payment terms of net 30 or net 60 days for instance.

This period allows their customers to go through the accounts payable process and submit payments. However, if customers are repeatedly late on their payments or don’t submit payments at all, companies may be forced to take additional action to collect payments due.

What Are Uncollectible Accounts Receivable?

Uncollectible accounts are those that don’t respond to requests for payment. A company may send repeated notices of the amount due or try phone calls. If the customer refuses to respond or set up a payment plan, it is indicative of an uncollectible account.

Some uncollectible accounts can occur with one customer’s account, or there may be multiple customer accounts that are overdue at one time. A specific customer who has not submitted payment may be having financial issues. It’s important for the accounts receivable department to try to work with them to resolve their outstanding debts.

If there are multiple clients with unpaid account balances, this is indicative of a problem in the credit approval process. The approving company may want to consider performing credit checks on their customers before extending credit or require payment to be made upfront.

How Should My Company Handle Uncollectible Accounts?

When an account is deemed to be uncollectible after exhausting all options to obtain payment, certain adjustments will need to be made in the financial statements. Most companies wait to make these adjustments until they are completely certain they won’t be collecting the amount that is due to them.

This procedure results in an accounts receivable balance that reflects a growing amount of unpaid revenue. For example, an accounts receivable aging report can reflect a significant portion of unpaid accounts receivable that is past due for a long period of time.

To clean up the balance sheet and eliminate worthless assets that won’t be collected, the accounting department must perform a set of journal entries.

What Journal Entries Are Required for Uncollectible Accounts Receivable?

Common accounting practices require a set of journal entries to be made for uncollectible accounts. Prior to the actual write-off of an account, an estimate will be made for the percentage of accounts expected to be uncollectible.

This estimate is usually made on historical performance. For example, a company may expect that 5% of the amount of accounts receivable balance will become uncollectible or part of doubtful accounts.

Once the percentage is determined, an adjusting entry will be made between a contra asset account and bad debts expense. This approach is known as the allowance method.

Using the same example, if a company had $100,000 of accounts receivable due at year-end, they would make a credit entry to the contra asset account for $5,000 and a debit entry for $5,000 to uncollectible accounts expense.

This estimate is typically performed at the end of each accounting period for financial reporting purposes. A final adjustment is made at the fiscal year-end.

This approach aligns with the matching principle established in generally accepted accounting principles and ensures that bad debts are recognized in the proper accounting period on the income statement.

Accounts receivable will have an overall debit balance, while the contra asset account will have a credit balance. While the contra asset account has the credit balance, it is still included as part of current assets, not liabilities, in the general ledger.

If a specific customer is later determined to have an uncollectible account, an entry to credit accounts receivable and debit the contra asset account will need to be performed.

These entries will appear on the company’s balance sheet only, as the initial entry to debit bad debts will have been assumed to have been made under the allowance method in the prior period.

If a customer’s balance is collected after it has already been written off, the accounting department can record a credit entry to the specific account for the customer in accounts receivable and a debit to cash. In addition, an entry for the same amount must be made between accounts receivable and the contra asset account.

How Do I Know When an Account Has Become Uncollectible?

Financial managers need to know when to write an account off as uncollectible. In most cases, there is a standard set of procedures that they follow to make the determination. In other cases, the decision may not be as clear.

Once an account has passed the overdue mark, it’s important to have a discussion with the customer. Start with a written notice, and then try to get them on the phone to establish why they have not yet made payment. It’s possible that the payment was overlooked or has been made but not yet received.

Sometimes, customers may no longer be able to pay the debt. This condition can be due to job loss or other financial insecurity. They may also pass away or move with no forwarding address. If the customer is a business, it may become insolvent. In all of these situations, it can be safe to say that an account is uncollectible.

How Do Bad Debts Affect Your Business?

If bad debts are allowed to continue, a number of things can occur that will negatively affect your business:

• Reduction of the net realizable value and liquidity of accounts receivable
• Possibility of losing the trust of investors due to uncollected accounts
• Reduced expected cash flow, which can disrupt the cash availability of the business to meet expenses
• Diminished cash flow can result in insolvency or bankruptcy
• Potential for overstated revenue

To mitigate issues with accounts receivable, ensure that you have a strong credit policy and regularly monitor the payment of your customer’s accounts.

How Can I Reduce Uncollectible Accounts?

There are a number of ways to reduce uncollectible accounts if you feel they are becoming an issue. While it can be nearly impossible to completely eliminate the potential for unpaid customer accounts, you can reduce them through specific actions. We strongly advocate for automating your invoice follow-up using email sequences, see our platform for how it can help you speed up your AR collections.

Perform a Credit Check on New Customers

While it can be exciting to receive a new customer, make sure to run a credit check on them prior to issuing them a credit allowance. A credit check will reveal any payment problems that a customer has with other businesses.

If a credit check indicates that the customer has payment issues, don’t extend them credit terms. Instead, require that they pay upon delivery or upfront for any services or goods purchased.

Clearly State Your Payment Terms and Conditions in Writing

Before delivering goods or services to a customer, make sure to provide them with a written contract indicating the terms and conditions of the sale, especially if they will be paying on credit. You can also indicate any late fees that will be charged if payment is not made.

Require a Down Payment for Credit Sales

To mitigate the potential for uncollected amounts due, require a down payment for any customers who purchase items under credit terms. Down payments can be for all customers, or they can be for certain customers with poor credit history. You can also require them on the basis of the amount of the sale.

Offer Discounts or Incentives for Upfront Cash Payment

Incentives may encourage your customers to pay before the due date. While it may diminish your overall earnings for the sale, it can reduce the number of accounts that become entirely uncollectible.

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A cash conversion cycle is a familiar term in accounting. It describes how long it takes to convert inventory into cash. The cycle considers the time required to sell inventory and collect receivables, as well as the time the company has for paying its own bills. In this article, we will cover both the cash conversion cycle and what a negative cash conversion cycle means.

There are three different factors involved in the cash conversion cycle formula, including days inventory outstanding, days sales outstanding, and days payable outstanding.

How Is the Cash Conversion Cycle Formula Calculated?

The cash conversion cycle calculation formula is:

Cash Conversion Cycle = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payable Outstanding (DPO)

Each of the three factors involved in the cash conversion cycle formula must be individually calculated before they can be applied to the formula itself.

Days Inventory Outstanding, the first component of the formula, represents how long it takes your company to convert inventory into a finished good and complete the sales process. The formula for Days Inventory Outstanding is:

DIO = Inventory / Cost of Sales x 365

The next component of the cash conversion cycle formula is Days Sales Outstanding. Days Sales Outstanding, or DSO, indicates how long it takes for your company to recover outstanding receivables from its customers. It is calculated using the following formula:

DSO = Accounts Receivable / Net Credit Sales x 365

The final part of the cash conversion cycle formula is Days Payable Outstanding or DPO. DPO is calculated using the following formula:

DPO = Accounts Payable / Cost of Sales x 365

DPO represents how long it takes on average for your company to pay its bills.

Once all of these components have been calculated, business owners can apply them to the cash conversion cycle formula.

What Information Does the Cash Conversion Cycle Provide?

Companies that use the cash conversion cycle will know exactly how long it takes them to receive cash from their customers after initially investing in inventory. In general, the shorter the cash conversion cycle is, the better. Shorter cycles mean that a company gains access to the money it has used to create a product in a quicker amount of time.

You may compare cash conversion cycles between companies that have similar structures and industrial sectors.

This analysis will give you the best insight into your company’s performance versus another’s, but it’s not uncommon to compare the cycle times across entirely different companies. However, the analysis received from doing so is less likely to be relevant.

What Are the Advantages of Using the Cash Conversion Cycle?

The cash conversion cycle is a great KPI that can be used to glean certain information about a company. Common benefits include:

View of the Overall Picture of a Company

The cash conversion cycle gives its users an overall picture of the cash flow for a company. The shorter a cash conversion cycle is the faster access to cash the company will have. This metric can be an excellent statistic to have as a starting point for potential improvement.

Insight into the Company’s Financial Health

A company that has a short cash conversion cycle is typically doing well. They don’t have significant problems with customers who don’t pay on time or products that don’t sell. This cycle length reduces the potential for company liquidation, which occurs when bills aren’t paid, and money isn’t collected.

A Benchmark for Management

Once you’ve established what your cash conversion cycle currently is, you can use it as a benchmark. If cycle times decrease, the company is improving its performance. However, if they increase, it’s likely that problems have developed that need to be addressed.

What Are the Disadvantages of the Cash Conversion Cycle?

While the cash conversion cycle can provide insight into company performance, it’s important to realize that the measurement does have disadvantages.

Different Between Industries

It isn’t easy to use the cash conversion cycle between industries. For example, a manufacturer may require many days before they are able to produce a product for sale. This lag can increase the DIO and potentially the DSO.

If you were to compare a manufacturer with another company that produced items quickly, like a company in the services industry, you’d likely see significant differences in the cash conversion cycle time. However, that doesn’t mean that one is better than the other. To know more, you’d need to know what was realistic for both industries.

Focusing Too Much on CCC Improvement Can Result in Unhappy Business Relationships

While CCC is a great measurement to consider, make sure it’s not the sole focus of the business. You’ll want to walk a fine line between keeping a reasonable cash conversion cycle time while also keeping good customer and vendor relationships.

To improve CCC, you have to sell inventory and collect money as quickly as possible. However, if you put too much pressure on your customers for payment, they may seek other companies offering similar products.

The other way to improve CCC is by delaying payment to your vendors. However, if you become too far past due, your vendors may refuse to sell to you. This refusal can be disastrous if you’re dependent on their product.

What Is a Negative Cash Conversion Cycle?

Up to this point, we’ve considered the basic understanding of what a cash conversion cycle is and how to calculate it. We’ve assumed that the formula will result in a positive number of days.

However, it is possible for the cash conversion cycle to result in a negative number. This result is an enviable position for a company to be in and can result in a significant amount of cash on the balance sheet and great working capital.

A negative cash conversion cycle means that it takes your company longer to pay your expenses than it does to sell your inventory and collect your revenues from your customers.

Those with a negative CCC are able to essentially finance their operations with little outside help in the form of investors’ capital and instead use their suppliers for assistance.

How Can a Company Achieve a Negative Cash Conversion Cycle?

To obtain a negative cash conversion cycle and greater operational efficiency, a company must be very deliberate in its actions. There are several ways to do so.

Reduce the Amount of Inventory Held

In some cases, businesses are able to reduce the amount of inventory that they hold. This approach is more likely for those companies that don’t rely on foreign manufacturers as part of their production process.

To improve inventory hold times, it’s best to build a strategic partnership with your suppliers. Ask them to hold an inventory buffer for you in case demand for your product increases.

Another way to reduce inventory is to reduce the variety of products that you offer. If you see that some products don’t perform well and have limited sales, try to adjust your inventory to reflect this.

Reduce Accounts Receivable

For companies that offer their products using credit sales, an accounts receivable balance is common. Reducing that balance by increasing inflows is key to improving the cash conversion cycle. You can do this by negotiating new sales terms for your customers or by asking for some payment upfront. This setup results in less time for the customer to pay you.

However, you must be very careful if you decide to negotiate new sales terms and ensure that your customers won’t walk away in search of another business that will sell them similar products on better terms.

Businesses that work in the eCommerce sector are typically able to reduce accounts receivable quickly by selling their products upfront or when they ship. This strategy reduces the amount of time it takes to convert an online retailer’s sale to cash.

Increasing Accounts Payable

Another way to help your company obtain a negative cash conversion cycle is by controlling your liabilities balance. If you negotiate with your vendors and pay suppliers over a longer period of time, your business may be able to achieve a negative cash conversion cycle.

Not all suppliers will be happy accepting longer payment terms. After all, they have their own cash conversion cycles that they need to worry about. However, if you’re relentless and have a strong relationship with them otherwise, you may be able to convince them to accept longer terms.

How Does a Negative Cash Conversion Cycle Reflect on My Financial Statements?

If you attempt to follow the guidelines and reduce your cash conversion cycle, you may notice a few things that will occur on your balance sheet and income statement.

Higher Revenues

The first thing you may see is higher revenues. This growth occurs as you continue to build your cash balance, allowing you to invest in more inventory and sell it quickly. If you employ the strategies for obtaining a negative cash cycle or a lower CCC, you can compare your revenues over time and see how they improve.

Declining Accounts Receivable Balance

Since you will be obtaining payment for your goods or services, you’ll see your accounts receivable balance decrease. You may also notice a decrease in the average aging of your receivable balances.

Increasing Accounts Payable

The changes to your processes may result in an increase in your accounts payable balance. This increase occurs since you will be paying your vendors over a longer period of time. The average aging of your accounts payable balance will likely increase as well.

Improved Liquidity

With greater access to cash, your business will have increased liquidity. This increase is great, as it means your company will be better equipped to handle any potential downturns that may occur. You also won’t need to rely on outside capital for funding.

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As a business owner, you will need to understand the concept of an aged trial balance. An aged trial balance can be used to determine how long your company’s debts have been outstanding.

It can also show how long your receivables have been overdue. The type of report that you decide to read will be determined by whether you are concerned about your customers or your vendors.

What Is an Aged Accounts Receivable?

An aged accounts receivable is a type of aged trial balance report. It provides a listing of all of your customers and the amounts due from them. The AR aging will provide these amounts in aging buckets. These buckets will include a current column and typically other buckets such as over 30, over 60, and over 90.

All of these balances will be helpful to you as you determine which customer accounts have outstanding balances. You will want to follow up on receivable balances that are past due to prevent them from becoming uncollectible accounts that need to be written off on the income statement as bad debt expenses.

If you find that the receivable aging report shows a lot of customers with older outstanding balances, you may want to reconsider your credit sales policy.

As accounts receivable balances age, it becomes less likely for them to be collected, and they may become doubtful accounts. You can establish new credit terms limiting the time that your customers have to pay before their balances become overdue.

What Is an Aged Accounts Payable Report?

Similar to an aged accounts receivable report, the aged accounts payable report provides a list of all of your current vendors and the amounts that you owe to them.

The amounts will be presented as a list by supplier and aging periods. The aging periods indicate the number of days that it has been since the invoice was first received from your supplier. Usually, the invoice is recorded in the general ledger according to its original invoice date.

It’s not uncommon for companies to try to extend payment terms with their vendors and pay their balances late. This approach can help them if they are struggling with cash flow issues or want to improve their working capital.

However, before deciding to pay vendors past the due date, it’s important to try to negotiate longer payment terms. You don’t want vendors who are important to your business to become angry.

When running an aging report, make sure to set the date range appropriately. You can set an as-of-date reflective of the time period you are attempting to view. If you like, you can also run a historical aged trial balance to compare your company’s current payables status with that of a prior date.

Why Is It Important to Know Which Accounts Are Aged?

By understanding how quickly your customers are paying, you’ll be in a better position to decide whether your credit sales policy is appropriate or if it is causing issues.

If you have numerous clients with overdue accounts receivable balances, this points to an issue in ensuring the collection of your accounts. You may need to engage in better follow up with your customers to collect amounts due. It’s possible that you may choose not to work with certain clients if they constantly ignore their balances.

From a payables point of view, understanding the amount of time it takes to pay your vendors can help you determine whether your own payment policies are sound. You don’t want to alienate valuable business partners by consistently paying them late.

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An ACH payment is a type of electronic payment initiated through the Automated Clearing House Network. The payment is initiated between two banks or between two bank accounts that are held by the same bank.

The ACH Network is overseen by an association known as Nacha, formerly the National Automated Clearing House Association. Nacha establishes the rules for all ACH transfers within the United States. It aspires to ensure that all ACH transfers are safe and effective.

Potential transactions that use the ACH system include government payments, consumer transactions, and business-to-business disbursements. In some cases, ACH transfers may occur between international accounts, but this is relatively rare.

ACH payments are different from other payment methods such as credit cards, wire transfers, paper checks, or cash. They occur directly between two bank accounts, eliminating any other type of payment tool.

The ACH system is available worldwide, but it’s not usually used within the European Union, the UK, or anywhere else outside the United States and its territories. When a bank transfer is required internationally, a wire payment will usually be used since it may be much faster than the ACH system.

What Are the Two Main Types of ACH Transactions?

ACH transactions can be classified into two types: direct deposits and direct payments.

A direct deposit is when a business or individual receives money. Direct deposits are typically used for payments from businesses or from the government to an individual consumer, such as for payroll purposes. They can also occur when government Social Security benefits or tax refunds are sent.

A direct payment occurs when there is a transaction between two bank accounts to make or receive payments. This can occur between businesses or individual consumers. For example, you may send payments to family, purchase a product or service, or pay bills using ACH.

Businesses may also pay their bills or purchase products from another company using ACH. A direct payment occurs when money is sent to an individual or a business. Software apps such as Venmo and Zelle facilitate the use of the ACH system between friends and family.

What Is the Difference Between ACH Payments and Wire Transfers?

The main difference between ACH payments and wire transfers is how they are processed. ACH payments are processed three times per day in batches. On the other hand, wire transfers are processed immediately after they are initiated by an individual or business.

Wire transfers can be quite expensive, depending on the bank and the amount transferred. In some cases, fees may be as high as $60. ACH transfers are much cheaper; they generally cost less than a dollar for banks to process.

Another difference between ACH and wire transfers is the speed at which they are received. While wire transfers may be instantaneous or be completed within one day, ACH transfers may take up to several days to process.

How Do ACH Payments Work?

Outside of the ACH network, there are two other intermediaries involved in processing ACH payments. These are the Originating Depository Financial Institution (ODFI) and the Receiving Depository Financial Institution (RDFI).

As an example, consider a homeowner who has decided to make regular monthly payments for their electricity services. During the initial contract setup, they provide their account information, including their routing number and account number, to the utility company and agree to have a payment sent automatically on the 15th of each month.

When the ACH payment occurs, the utility company’s bank will send a request to the homeowner’s bank for payment.

The utility company’s bank operates as the ODFI, while the homeowner’s bank operates as the RDFI. Both banks communicate with each other, and the money is transferred from the homeowner’s account to the utility company’s to pay the utility bill.

How Long Does It Take for ACH Payments to Process?

Nacha sets the rules for ACH processing times. Under their terms, direct payments can be processed within a business day or up to two days. Direct deposits must be processed by the next business day.

Receiving banks may hold any transferred funds for a day or two for processing purposes. Thus, it’s possible for ACH payments to take between three and five business days before they are finalized.

How Much Do ACH Payments Cost?

ACH payment costs will differ by the payment provider and the bank. Some processors charge a flat rate, which is usually less than a dollar. In other cases, processors may charge a percentage of the transaction. The percentage fee varies from 0.5% to 1% per transaction. Providers sometimes charge an additional monthly fee, which may vary.

What Are the Advantages of Accepting ACH Payments?

There are a number of benefits to accepting ACH payments.

1. It’s Cheaper than Credit Card or Debit Card Payments

ACH payments are cheaper to accept and send than credit card or debit card payments. Oftentimes, companies that accept card payments must pay a percentage of their receipts for the use of the card network. That percentage can vary from 1.3% to 3.5%, depending on the card provider.

2. ACH Debit Allows You to Decide When You Are Paid

While wires must be implemented by the sender, ACH debit transactions can be agreed upon by the purchaser and seller in advance.

Thus, if you normally make a monthly payment to a utility provider, cell phone company, or other business, you can agree to have the money automatically withdrawn from your account. This can occur on a set date that you both agree on.

This is beneficial to companies, as they will have better insight into their incoming receivables and are less likely to incur late or missed payments or insufficient funds. It reduces time spent chasing after customers for payment and can result in a more predictable cash flow.

Customers won’t need to worry about initiating a payment or remembering to submit a check for services they’ve purchased. This results in less hassle and ensures their transfer of funds is automatic.

3. ACH Has a Lower Payment Failure Rate

When customers decide to pay via automatic card payment, companies run the risk that their card may eventually fail or be declined. Credit cards have an expiration date, and if the customer doesn’t update them in time for payment, the business may lose incoming receipts. This can result in an inconsistent cash flow.

What Are the Disadvantages of Accepting ACH Payments?

While the benefits of accepting ACH payments are clear, there are also some drawbacks. These include:

1. Slow Processing Speed

Since ACH transfer is a batch process that occurs several times a day, it may take between one and three days for the money to be available to the payee. For companies that want immediate access to money, ACH can slow down the process.

In addition, ACH transfers are usually not processed on the weekends or on holidays, except in certain cases. This can result in additional time spent waiting for funds.

2. Transaction Limits

Most banks set a limit on how much money can be sent via an ACH transfer. These limits may be based on the individual transaction, daily monetary thresholds, or monthly caps. Some banks may set limits on actual bill payments, while others may limit transfers to other banks.

For example, Zelle and Venmo have transaction limit thresholds that they have established for transactions that occur between their customers.

Nacha also limits the number of money transfers between a savings account and a checking account each month. Currently, only six such withdrawals are allowed to move money each month. If a bank sees that money transfers between savings and checking occur too often, they may convert a savings account to a checking account.

3. No International Transfers

Nearly all US banks prohibit international transfers using the ACH system. Instead, international transactions must be handled in other ways, either via wire or a credit card. Unfortunately, both of these methods are more expensive than ACH.

Can a Small Business Use the ACH System?

Small businesses are not allowed by Nacha to be an ODFI or RDFI in an ACH transaction. However, you can use your bank or an ACH payment system to run ACH payments. A number of ACH processors make their services available to small businesses.

Some of the more well-known ACH payment processing services companies include GoCardless, PaymentCloud, and Stripe. If you are a small business owner and wish to use ACH, you should research the different payment options available to you and choose the one that makes the most sense.

When making a decision, you’ll want to consider the company’s reputation, its pricing, and its ease of use. Using one of these services may allow you to set up easy recurring payments for your customers. It will also help you provide more effective payment services that your clients will appreciate.

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One of the first things that a business must determine when engaging with a new customer is the payment terms they will offer. There are all sorts of options available. Some of these include:

• Payment prior to delivery of goods or services
• Remittance upon final delivery of goods or services
• Invoicing by milestone as a project is completed
• Offering extended payment terms, such as net 30, net 60, or net 90

How you determine your company’s payment structure is dependent upon your goals, the customer’s history of on-time payments, and the goods or services that you are offering. Offering extended payment terms such as net 30 is one of the most common invoicing structures, especially in business-to-business sales.

How Do Net 30 Terms Work?

Under a net 30 payment terms structure, your customer is given additional time after the receipt of your goods or services to pay you. It gives the customer the benefit of short-term financing without any interest rates applicable to a later payment.

In most cases, net 30 terms simply indicate that payment is due within 30 days of the date of the invoice. However, some companies use net 30 in other ways, such as:

• Net 30 based on business days, not calendar days
• End of the month net 30

Under a net 30 end of the month structure, the client is expected to pay the full amount of an invoice by the end of the following month after receiving it. Thus, if the invoice were received in October, they would need to pay the balance by the end of November.

Unless otherwise indicated, listing net 30 on your invoice to your customer means that payment is due 30 calendar days after the date of the invoice. If it isn’t paid on time, your business could charge a late fee.

When Does Net 30 Start?

Usually, net 30 starts from the invoice date. However, in some cases, it can mean 30 days after work is completed, services or goods are delivered, or some other milestone. When you first engage with the customer, ensure that you clearly establish the terms for payment.

You can do this through a contract or a quote. Make sure the client fully understands the due date or net terms that you are offering. If the order is costly, it’s important to get their express acceptance through a signature or some other type of written correspondence.

Can I Offer Discounts to My Customer Using Net 30 Terms?

In some cases, small businesses want to offer their new clients trade credit, but they also want to encourage early payment. To do this, they can combine a percent discount with net 30 terms. If a discount is provided, it will be denoted using the below terminology:

Percentage Discount / Number of Days in the Discount Period, net 30

For example, if your company wants to offer a 5% discount for making a payment within ten days, the terms that appear on the invoice would be indicated as 5/10, net 30.

Thus, if the client decides to pay within ten days, they can reduce the total amount of the invoice by 5%. However, if they need the additional time to pay the bill, they will have up to 30 days before their full payment becomes late.

You can also set different payment terms outside of net 30, such as net 60 or even net 90. It all depends on how comfortable you are with offering longer payment terms to your customers. If your company doesn’t have any cash flow problems, it may make sense to do so.

What Are the Advantages of Offering Longer Invoice Payment Terms?

There are a number of benefits to offering extended payment terms, such as net 30. These benefits can be especially clear for companies that follow a business-to-business model where common payment terms are extended.

1. Ability to Attract More Customers

If other businesses in your industry offer a form of trade credit through extended payment terms, it may make sense for you to do the same. For example, if your competitors all offer net 30 terms but you demand payment upfront, your company could lose business whenever payment terms are a concern to your customers.

You may be able to attract more customers by offering longer payment terms than your competitors. If the majority of other companies similar to yours offer net 30 terms, but you offer net 45, your services may be more attractive to those who need business credit.

2. Helpful for Larger Businesses

If your client composition is made up of larger businesses, they likely have a payment processing procedure that they follow. They may receive an invoice, put it through their accounting system, and seek approval for its payment from account managers before finally submitting the payment due.

These steps take time, and offering a net 30 payment term allows them to follow their normal processes while also ensuring your payment.

Individual customers and smaller businesses are likely to be more flexible when it comes to their payable processes. A smaller business may seek to take advantage of payment discounts and pay early, while an individual customer may be able to pay as soon as goods or services are delivered.

3. Improves Customer Loyalty

Offering your customers longer payment terms can potentially increase their loyalty to you. This outcome is particularly helpful if your business is dependent upon repeat customers. Some companies may have more one-time patrons, while others rely on continuing allegiance from a pool of regular clients.

If your customers are regulars and they appreciate extended payment options, offering net 30 terms can encourage their preference for your company over other competitors.

What Are the Disadvantages of Offering Extended Payment Terms?

The disadvantages of offering longer payment options will vary depending on your company’s business needs. Common drawbacks of offering longer payment terms include:

1. Potential for Cash Flow Issues

Small business owners may be more reliant on upfront payment for their goods or services than those with more cash in the bank. This consideration is especially true for companies that are just getting started or with high overhead.

Companies that can afford to pay for their regular expenses and wait on payment for their customers are in a better position to offer extended payment terms.

If you aren’t sure whether offering longer terms is a good fit for your business, you could start with shorter terms, such as net 7 or net 15. This approach can give you better insight into how longer terms may affect your business.

When determining the payment terms that you will offer a customer, it’s smart to have a full understanding of your accounts receivable, accounts payable, and current cash balance. You can prepare a cash flow forecast to determine whether offering extended terms is a viable solution for your company.

2. May Lead to Late Accounts

If you provide goods or services to a customer and then allow them to pay you at a later date, there is always the potential that the client will pay late or not at all. After all, there is less incentive to make the payment on time if they’ve already received what they were purchasing.

Most customers abide by their payment terms and will pay on time. However, if you start to see a trend of late payments from a client, it’s best to reassess the terms that you are offering them.

In some cases, you may want to ask for payment upfront or by milestone, especially if the services or goods that you are providing to the client make up a significant part of your company’s revenue.

If late payments are not intentional, but due to the payable procedure that your client has in place, you may ask them how to speed up the process. They may be agreeable to paying by milestone or offering partial payment upfront.

3. Can Result in More Work

Not collecting payment upfront can lead to additional work for small business owners. For starters, you’ll need to manage your accounts receivable. If you typically take care of your own accounting or have a very small staff, this may result in needing to hire someone for help.

Managing accounts receivable will include invoicing your clients and ensuring that they pay on time. When clients fall behind, you’ll need to follow up with them to collect payment. If you have a significant number of clients, this process can quickly overwhelm a small business with limited staff.

When Should My Company Offer Extended Payment Options?

The decision to offer extended payment terms should rest with the small business owner. You’ll need to take a look at your business structure and current cash flow and determine whether it makes sense, and you should also find out whether your competitors offer extended terms.

Common situations where offering extended payment terms make sense include:

It’s Common in Your Industry

Offering a longer period of time to pay invoices is common in certain industries, such as manufacturing, industrial production, and business-to-business sales. When your company operates in one of these sectors, you may be expected to offer extended payment terms. If you choose not to, you may lose business to competitors.

Your Products or Services Are Expensive

If the goods or services that you offer are expensive, customers may expect a longer period of time to pay. This expectation is common for certain services, such as home remodeling or extensive landscaping. Companies that sell high-priced home items such as mattresses or furniture may also offer extended payment terms to their clients.

When Should I Not Extend My Payment Terms?

Freelancers and other small business owners may not be able to offer extended payment terms, especially if their business is new and they don’t have much cash available. Some businesses operate in industries where extending credit is not common. Situations where net 30 payment terms don’t make sense include:

Retail Store Servicing Consumers

Companies that operate in the retail sector and sell their products to consumers normally won’t do so on a net 30 basis. For example, a convenience store probably won’t allow customers to pay for food and drinks on extended credit — instead, they’ll want their payment upfront.

This requirement is also true for companies that sell services to consumers. For example, a hairstylist or masseuse will want payment on delivery for their service. It isn’t customary to give clients in these industries an extended period of time to pay.

You Can’t Afford to Extend

When your business is just starting out and doesn’t have much cash, you’ll want to collect payment from your clients as quickly as possible. You may not be able to wait for them to pay on extended credit terms. However, as your business continues to scale, you may be able to consider extended credit terms as a way to gain new clients.

If you operate in an industry where your competitors all offer extended credit, you could consider entering into a factoring agreement. In this situation, a bank will agree to finance all of your invoices for a percentage of their value.

Your company will receive immediate payment for the invoices from the bank, and the bank will follow up on collection with your customers. This approach could allow you to remain competitive while still ensuring a stable cash flow.

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An electronic funds transfer (EFT) is simply the electronic movement of money from one bank account to another. It is a blanket term that applies to any type of transfer of money that occurs electronically.

These types of payments have revolutionized the way people and companies do business. Rather than traditional methods of paying via cash or paper check, electronic funds transfers simplify the process and allow money to change hands very quickly — in some cases, instantaneously.

Sometimes, people compare EFT payments to ACH payments that are overseen by the Automated Clearing House Network. However, ACH transfers are simply one type of EFT transaction.

An ACH transfer generally occurs only within the United States — they don’t occur internationally. They are handled in batches between U.S. banks and often take a day or two to fully settle funds within the ACH network.

EFTs are governed by the Electronic Funds Transfer Act. This act is a regulation that was put in place to protect people who make EFT payments.

If an unauthorized transaction is deemed to have occurred, financial institutions must notify account holders. Account owners must also be provided with a summary of their rights as they pertain to EFTs.

What Are Some Types of EFT Payments?

Pretty much any payment that occurs electronically is an example of an EFT payment. A few of the most common types of electronic funds transfers are described below:

ACH Transactions

ACH transactions occur between two banks. To set up an ACH transaction, the banking information for the accounts must be provided. This information will include the routing number, bank account number, the date the transaction should occur, and the amount to be sent.

Commonly, ACH transactions are used to make direct deposits of payroll or to pay bills to specific entities, such as a utility company or rental agency.

Credit Card/Debit Card

Any time you use your credit or debit card, you are performing an EFT. Credit cards and debit cards are common payment methods used for everyday purchases, such as groceries, retail shopping, or dining out.

When a transaction occurs involving a POS system and your card, your bank will be notified to transfer the funds directly from your account to the seller’s. Debit cards are usually tied to a checking account, while credit cards are given to those who have a line of credit with a bank or credit union.

ATM Transactions

While EFT transactions are becoming the most common method of paying for goods or services, in some cases, people still need cash for certain items.

Your debit card can be used for withdrawals of funds through an ATM. When inserted into an ATM, the debit card communicates with the bank to allow you to withdraw money from your checking or savings account.

Electronic Money Transfers

Services such as Zelle, Paypal, and Venmo are commonly used to move money electronically. Once a transfer has been initiated using one of these payment systems, money is moved almost instantaneously.

In some cases, there are limits to the amount of money that can be sent through these payment processing systems. The limits may be set per day or per transaction, depending on the processor.

e-Checks

In some cases, businesses will accept e-checks (or electronic checks) for payment. This payment method is common for mortgage lenders or rental agencies.

When making a payment via e-check, you’ll be required to list the routing number and bank account number. You may also be required to list a check number. e-Checks operate similarly to paper checks, but the balance in your account may be validated before the check is accepted.

Online Banking

Many banks give their customers the option to handle their bank account information online. Customers can view their account balances and any debit or credit card transactions through an online portal.

Most banks also allow for recurring or one-time online bill payments that can be set up through the online portal. Once a customer indicates the banking details of the payee, they’ll be able to make regular payments to them without the need for paper checks.

Wire Transfers

Wire transfers are commonly used in the international banking world. They are typically more expensive than an ACH transfer, but they may be required to transfer money electronically between two international banks. Wire transfers usually occur immediately, although in some cases, they may take an extra business day to fully settle in the account.

How Do EFT Payments Work?

EFT payments can occur using a variety of different methods, but the end result is to transfer money from one bank account to another. The EFT may occur between accounts held in the same bank or between accounts held by two different banks. An EFT may be a domestic or an international transaction.

When an EFT payment is initiated, the amount of the payment to be made is indicated. Depending on the payment options used, additional information may be required.

For example, if an echeck is the means of an EFT, account information for the payer and payee will be required to process the transaction. Other methods may be more automated, such as a debit card transaction that occurs with the use of a point of sale machine.

What Are the Advantages of EFT Payments?

There are a number of advantages to using EFT payments as an individual and as a business. A few of these include:

Faster Processing Speed

An EFT is typically much faster than more conventional payment methods, such as a paper check. Since most of the payment process occurs through automation, less effort is required by the payer and payee. Payments can settle instantaneously or within the next business day. In contrast, a paper check can take several days for banks to transfer funds.

Paper checks also require more manual intervention. They may need to be mailed to an account servicer, leading to the potential for lost checks in the mail or interception of checks to gain access to the account information of a bank account.

Inexpensive to Process

EFT transactions are generally very cheap for companies to process. The cheapest forms of EFT transactions are e-checks and ACH transfers, which can occur for less than a dollar. Payment processors such as Zelle or Venmo are free to use, although they are generally used for personal expenses and transfers, not business expenses.

Wire transfers are the most expensive form of EFT, but they are reliable and quick. Since they are commonly used to handle international money transfers, they can be helpful for ensuring that funds are available and are transferred accurately.

Secure

EFTs are generally the safest way to initiate a payment or transfer funds. Since they occur via electronic means, there is generally no manual intervention required. Details of the transaction are stored electronically and handled via automated software.

In contrast, cash may be easily stolen from individuals or businesses. Checks contain bank account information, so unscrupulous individuals may record the details for other means.

The best way to ensure the security of your EFT is to use processors that you are familiar with and that you trust. You should also ensure that you protect the details of your account whenever you make an EFT.

What Are the Risks of EFT Payments?

As with any payment method, there is always the potential for risks. A few risks of using EFT transfers include:

Stolen/Lost Debit or Credit Cards

If a debit or credit card is lost, it’s important to notify the issuing financial institution as soon as possible. Under the EFTA, if the card is reported lost or stolen within two days, the user’s liability is limited to $50 for unauthorized transactions.

If the missing card isn’t caught within two days, liability for fraudulent transactions can still be limited if the card is reported missing within 60 days.

Unauthorized Transactions

For EFT transactions that do not arise from credit or debit cards, consumers are given up to 60 days to report fraudulent activity. If transactions are reported during this time, the user will not be held responsible for them while the bank investigates. However, the activity must be reported during the 60-day timeframe to avoid liability.

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If you’ve recently purchased QuickBooks Intuit Online to perform bookkeeping for your small business, you’re likely wondering how to use it. QuickBooks can be intimidating, especially if you’re not an accountant or you haven’t used accounting software before. That’s okay — this guide can help you to get started today!

Can I Teach Myself QuickBooks?

It is certainly possible to teach yourself how to use QuickBooks, but it can be a little tough. You’ll need to spend some time on the platform to get some hands-on practice.

QuickBooks offers a lot of video tutorials and articles designed for first-time users. With some effort, it’s possible to learn QuickBooks on your own. However, a guided course is a good idea when you want to learn the best practices for QuickBooks and start off on the right foot.

A Step-by-Step Guide to Setting Up QuickBooks

When you first log in to your QuickBooks Online account, you’ll be taken to a homepage filled with information. This is your dashboard. It includes shortcuts to banking, sales, expenses, reports, taxes, and other items.

Snapshots of your company’s income and expenses, as well as sales and net income, are included within the dashboard.

1. Set Up Your Company File

One of the first things you will need to do is set up your company file. The company settings can be accessed through the gear icon located at the top right of your dashboard.

In the company file area, you can add the name of your company, pertinent identifying information, and custom forms. You can also set up your chart of accounts, which will be used to classify relevant revenue, expenses, assets, liabilities, and equity accounts.

2. Turn on Sales Tax

Any sales taxes that you charge or pay can be tracked via QuickBooks. To turn on the sales tax feature, navigate to your home page and select “taxes.” Next, enter the sales tax jurisdiction, the start of the tax period, and filing frequency.

Once the settings are saved, the tax screen will display the tax due, as well as the amount collected and paid for the current period.

3. Create Chart of Accounts

The chart of accounts is used to track transactions and balances for key reports such as balance sheets and net income. The setup process will create a generic chart of accounts that can be customized if needed.

Each account will have a category type, detail type, name, optional account number, and description.

You can also set up sub-accounts that roll up into main accounts if you like. This is helpful if you have different streams of revenue or similar expenses.

4. Manage Your Users

Depending on the plan that you selected, you may have between one and five users. In addition to your user count, you can invite two accounting or bookkeeping professionals. These individuals do not count towards your user limits.

There are various roles that your users may fill. The company administrator has access to all of the features and capabilities in QuickBooks. Standard users may have access to all features or be limited from specific areas such as Customers and Sales or Suppliers and Purchases.

If you have employees or contractors who should be able to use time tracking capabilities, they may be added into QuickBooks, too. They will not count towards your total allotted users.

Reports-only users also do not count towards your user limit. Users who are assigned a report-only role will be able to see all reports, except those that provide specific personal information, such as payroll reports or customer and supplier details.

You are allowed to have up to two accountant users enrolled. They do not count towards your user limit and can have any type of access rights you wish to define.

5. Set Up Products and Services

Companies that offer products and services may provide a list for entry into QuickBooks. The list can be used to support invoice creation, purchase orders, and inventory.

The products and services list can be found directly from the gear icon under “Lists,” in a category called “Products and Services.”

To add a product or service, you’ll click “new” and enter the required information. Details required include the name, an SKU (stock keeping unit number), category, sales information description, and sales price/rate. An income account should be associated with each product or service to ensure proper recordkeeping.

6. Link Your Bank Accounts

Linking bank and credit cards to QuickBooks Online allows you to automate bank transaction entries. When you take this step, you save time, as you won’t be required to perform as much manual data entry.

You can either link the accounts via automated bank feeds or download a file from your online banking system. The automatic feed option will allow up to 90 days of transactions to be stored.

Once you’ve linked your accounts, you can automatically match imported transactions with a previously recorded transaction or record it as a new transaction by designating an account and a payee name.

7. Download the Mobile App

Once you have QuickBooks set up, you’ll want to download the mobile app. The mobile app allows you to easily access your financial data when you’re away from your computer. Once it is set up, you’ll be able to track mileage and time spent on jobs. You can also easily send invoices or estimates to your clients.

How Do I Create and Manage Quotes and Invoices?

Once you have the basic configuration ready for QuickBooks, you’ll be able to move on to other items that you’ll likely encounter in your daily activities. One of these items is creating quotes and invoices.

To create a quote, you’ll navigate to “Create,” “Customers,” and “Estimates.” A screen will appear that allows you to enter specifics related to your quote. These details include customer name, the date, an estimate number, the products or services selected, and the quantity and price for each. There are additional fields that allow for greater customization if desired.

Once your quote is completed, you can save it and send it to your customer. Once they agree to the quote, you can change the document to become an invoice.

After you’ve changed the quote to an invoice, you may modify it if any work or products have changed. QuickBooks also allows you to attach any evidence or documentation to the invoice itself.

How Do I Create Expense Transactions or Pay Bills?

You can enter an expense transaction directly into QuickBooks. You’ll need to select the account the expense was paid from (likely petty cash, a bank account, or a credit card) and enter the payee details. There is also space for a memo, item details, and taxes.

If you have uploaded a bill into the QuickBooks accounting system, you’ll need to select “Expenses” and “Suppliers” from the left-hand navigation bar.

Next, in the Supplier Center, click on the “Open Bills” box in the “Money” bar. Locate the supplier you want to pay a bill for. Select “Make Payment” to apply the payment against the invoice.

What If I Have Recurring Transactions?

It’s common for companies to have regularly occurring transactions each month. As an example, the subscription fee that you pay for QuickBooks Online is recurring. You can automate recurring transactions so that they are recorded without additional effort from you or your bookkeeper.

The recurring transactions feature is available in QuickBooks Plus and Essentials, but not in Simple Start.

To create a recurring transaction, you’ll set up a template that includes the amount of the transaction, the date, the payee, and any other data. To view and save your recurring transactions, navigate to the gear icon, then select “Lists” and “Recurring Transactions.”

How Do I Reconcile Bank Accounts?

To reconcile your company bank accounts, all banking feeds must be uploaded for the month. Most of your transactions will be automatically recorded in the system according to your preferences and custom rules. However, irregular transactions may need to be manually modified.

To reconcile your bank accounts, navigate to the “Accounting” shortcut in your home menu and select Reconcile. In the “Reconcile” window, you can choose the bank account you wish to reconcile from the drop-down box.

Enter the statement ending date and the ending balance from your bank statement. As your account is reconciled for the month, all transactions that were previously recorded will be ticked off. Your reconciliation should indicate a difference of 0. If it shows an amount, you will need to review your transactions to determine what transactions were missed or duplicated.

How Do I Run Reports?

There are a number of reports available through QuickBooks that can be used to gain insights into the performance of your business and manage cash flow. The two most commonly used reports are Profit & Loss and the Balance Sheet. They are found at the top of the Report Center module, which can be navigated to from the home page.

You’ll be able to perform some basic customization for your reports, such as setting a report period and choosing how you want the numbers to appear. Once you have set your parameters, you’ll be able to display reports on screen, print or email them, or export them to Excel.

What Are the Easiest Ways to Learn QuickBooks?

As a small business owner, you’ll want to know how to use your accounting system. It provides you with all of the details you need to track your incoming customer receipts, provide quotes, ensure your bills are paid, and manage your bank accounts.

Come tax time, having accurate reports in QuickBooks can significantly help to realize your total income and expenses for the year, leading to maximized tax deductions.

QuickBooks offers a number of options for those who want to learn QuickBooks and make sure they employ best practices as they set up their accounting system.

QuickBooks Online Video Tutorials

For those who need assistance with certain types of transactions or actions within QuickBooks, there are a number of free video tutorials available. These tutorials are short — generally less than 5 minutes — and can answer specific questions, such as how to customize invoices or use the chart of accounts. They are an easy go-to for those who need help quickly.

QuickBooks User Guides

QuickBooks has a full set of user guides for those who prefer written instructions. These guides may be downloaded or printed for future use. They cover all of the features of QuickBooks and are easy to follow. If you want a more comprehensive set of instructions, these are a good option, as user guides are completely free.

QuickBooks Webinars

QuickBooks regularly hosts free webinars for all kinds of topics. Webinars are free and last less than an hour. During the webinar, you’ll be able to ask questions and get answers. Most classes are designed for those who are brand-new to QuickBooks and need an overview of the basics.

QuickBooks Certification

QuickBooks offers a full two-day certification program led by live instructors. During the course, you’ll explore every feature that QuickBooks has to offer.

If you don’t have the time to dedicate two full days to learning QuickBooks, there is a self-paced version. The self-paced version does not give you the ability to ask questions, however.

At the end of your training, you’ll be eligible to take a test to earn a QuickBooks training certification. While this option definitely includes all of the bells and whistles associated with understanding the features of QuickBooks, it is expensive. The live class is $679.95, while the self-paced option is $579.95.

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As a small business owner, it can be difficult to decide on appropriate accounting software that fits your needs. There are many to choose from — QuickBooks, Xero, and FreshBooks are just a few options.

For U.S.-based companies, QuickBooks remains the go-to, commanding almost 80% of the small business accounting software market. It offers a wide variety of options, including a cloud-based and desktop solution.

Both the cloud and desktop QuickBooks options have a variety of plans designed to fit certain needs. In this article, we’ll look at the features available in QuickBooks Desktop 2021 as well as its pricing plans.

What Is QuickBooks Desktop 2021?

QuickBooks Desktop 2021 is a comprehensive accounting solution that can be operated directly from your computer. It has three main pricing plans — QuickBooks Desktop Pro Plus, QuickBooks Premier Plus, and QuickBooks Enterprise.

The Desktop Pro plan allows for installation on one computer and a variety of features. Additional users may be added for an extra cost.

QuickBooks Premier Plus adds additional features such as forecasting and industry-specific reporting. QuickBooks Enterprise includes extensive features meant for a large-scale business and can accommodate up to 40 users.

What Features Are Included in QuickBooks Desktop Pro Plus?

QuickBooks Desktop Pro Plus includes these main features:

Track Income and Expenses

You’ll be able to connect your bank and credit card to automatically download and categorize transactions. Once connected, your bank transactions are automatically integrated into the system daily.

While QuickBooks can suggest tags or categorize income and expenses, you can manage them as well. Each transaction will be recorded in your general ledger according to the chart of accounts that you design.

Invoicing

QuickBooks Desktop Pro Plus allows you to create professional estimates, invoices, and payment receipts. You can invoice for services, goods, and billable time and expenses.

Your customers will be able to pay you directly through the invoice that they receive using a payment button. If invoices become overdue, you can set automatic reminders designed for your outstanding payments.

Run Reports

QuickBooks Desktop offers a suite of built-in reports, including profit and loss, expenses, and balance sheets. Each of these reports is designed to give you more insight into the financial performance of your business so that you can make decisions as required.

Aging reports for overdue accounts payable and accounts receivable are especially helpful for understanding your cash flow and pursuing any overdue accounts. Your reports can be sent to your accountant come tax time so that they can prepare your tax return.

Send Estimates

The Pro Plus version of QuickBooks allows you to easily send quotes for services or goods to potential customers. You can indicate the services to be performed or the goods to be delivered. Once your customer has accepted the estimate and you have performed the job, you can easily convert it to an invoice. This process eliminates the need for double work.

Track Sales Tax

In some cases, goods and services that you provide may be subject to sales tax. QuickBooks is designed to help you determine when sales tax may be necessary and can calculate it at the state or local level. QuickBooks Desktop also provides sales tax liability reports that you can use to determine exactly what you owe at any given point in time.

Manage Bills and Accounts Payable

As bills come into your business, you can easily upload them to QuickBooks Desktop for easy management and processing. The Accounts Payable module allows you to view unpaid bills, providing insight into upcoming due payments and early-pay discounts.

Clock Employee Time and Billable Hours

A timer included within the system allows you to easily track billable hours by client or employee and automatically add them to invoices. If you don’t use the timer, you can enter the time you spent on a job directly onto an invoice yourself.

Track Inventory

QuickBooks Desktop offers a great inventory tracking system that allows companies to track products as they are purchased and sold. You’ll also be able to receive notifications when the inventory of a particular item decreases. Inventory may be adjusted to account for loss, theft, and shrinkage.

1099 Contractor Tracking

If you have independent contractors, you’ll be able to track the jobs they performed, their time, and the amounts they were paid directly from QuickBooks Desktop. You may also prepare and file your 1099’s directly from the system.

Unlimited Customer Support

Under the Desktop Pro Plus plan, you’ll have access to unlimited support through tutorials, videos, documentation, and customer service. For those just starting out with QuickBooks, this can be especially helpful.

How Much Is QuickBooks Desktop Pro?

The starting price for QuickBooks Desktop Pro is an annual subscription fee of $349.99 with one user. Up to three users may be included for an additional fee of $200 each.

There are additional add-ons that increase the yearly price of QuickBooks Desktop Pro. For example, if you have employees, you may require their Desktop Payroll solution. The Enhanced Payroll module is the starter payroll plan and allows you to calculate pay and taxes directly with the system. Enhanced Payroll starts at $50 per month.

QuickBooks Desktop Payments allows you to accept payments directly from an invoice via credit card, debit card, ACH transfer, or Apple Pay. When you accept a payment, you pay a small fee for the service.

What Features Are Included in QuickBooks Premier Plus?

QuickBooks Premier Plus includes all of the features of QuickBooks Desktop Pro and a few others. Up to 5 user seats may be purchased with the Premier Plus version. If your company is mid-sized, being able to add additional users can be helpful. Additional features specific to Premier Plus include:

Forecasting

Premier Plus comes with a forecasting module designed to help you plan your revenues and expenses for upcoming periods. As the months go by, you can track your progress using both dollars and percentages.

If you note differences between the forecast and the actual results, you and your team will be able to either adjust the forecast or make changes to your operating plan. Forecasts may be viewed by customer job, class, expense, and revenue.

Enhanced Reporting

While QuickBooks Desktop Pro provides basic reports, Premier Plus allows for enhanced reporting tools. You’ll gain access to an additional 50 reports designed to give you better business insight. You’ll also receive industry-specific reporting tools that may be helpful, especially if you operate a service, non-profit, manufacturing, or construction business.

Cloud Access

For an additional fee, you can store your bookkeeping data in the cloud, ensuring that records remain intact if your desktop fails. Signing up for Cloud allows you to access over 200 apps that can improve the functionality of QuickBooks.

How Much Is QuickBooks Premier Plus?

QuickBooks Premier Plus starts at $549.99 for a year subscription with one user. Up to 5 users may gain access for an additional $300 each.

Just like QuickBooks Desktop Pro, you can purchase additional add-ons such as QuickBooks Payroll or QuickBooks Desktop Payments.

Another add-on, QuickBooks Desktop Point of Sale, can be purchased for those companies that sell goods in a retail storefront. Any goods sold will be automatically recorded into your QuickBooks system, allowing for more accurate reporting and inventory tracking.

What Features Are Available in QuickBooks Enterprise?

QuickBooks Enterprise is the company’s solution for large-scale businesses that are comfortable with QuickBooks and don’t need a full ERP.

The system is fully customizable according to your business needs. A QuickBooks expert can work with you to hand-pick solutions to optimize your QuickBooks Enterprise system. QuickBooks Enterprise includes all of the features of Desktop Pro and Premier Plus but also adds some additional options.

Add Up to 40 Users

With QuickBooks Enterprise, you may add up to 40 users to your account. Fees for additional users are undefined and must be discussed with a QuickBooks customer service team member. This feature is excellent for companies with multiple team members who will need access to the system.

Create Customizable Reports

It’s common for larger enterprises to have advanced reporting needs. QuickBooks Enterprise allows users to create their own custom reports using any data set. Reports may also be consolidated for companies that have multiple entities.

Advanced Pricing

For businesses that send lots of quotes to potential customers, the advanced pricing tool can be a lifesaver. The system may be customized for specific pricing rules, preventing under- or over-priced quotes.

Enhanced Inventory Tracking

Companies that have significant amounts of inventory need an advanced tracking tool. The mobile inventory barcode scanning tool available in QuickBooks Enterprise allows you to prioritize sales orders and create pick lists across warehouses. Workers can easily scan inventory and update orders in real-time.

Payroll

QuickBooks Payroll is automatically included in the Enterprise solution. You won’t need to pay an additional fee for the basic payroll plan. Salaries and hourly pay are calculated within the system, and allowances for federal and state taxes are automatically deducted.

How Much Is QuickBooks Enterprise?

QuickBooks Enterprise starts at $804 per year for the standard plan with one user. Additional costs will apply for adding users or adopting add-on features, such as Point of Sale or Desktop Payments.

Why Should I Use QuickBooks Desktop vs. QuickBooks Online?

For those who are cost-conscious, the higher tiered QuickBooks Enterprise may be more practical than similar options available through QuickBooks Online. The desktop version is better suited for those who need an advanced inventory solution or have unreliable internet access.

QuickBooks Desktop is generally faster than QuickBooks Online, especially if you consistently work with large files. Plus, if your accountant works from the office premises, there’s no need for remote access that is provided through QuickBooks Online.

What Are the System Requirements for QuickBooks Desktop?

QuickBooks Desktop products can be used on a Windows operating system (8.1 or Windows 10) supported by Microsoft. The QuickBooks mobile app is only available for those who choose the Enterprise plan. Those operating the Plus and Enterprise subscriptions or using payroll will need an internet connection.

Is There a QuickBooks Desktop Solution for Mac?

A Mac solution is available, but it has only the most basic features offered in Pro Plus. Pricing begins at $349.99 for one user.

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Money by QuickBooks is a new offering from Intuit designed to help small businesses manage their cash flow. Originally announced in October 2021, it is available as a mobile app through Android and Apple platforms.

Its purpose is to give entrepreneurs, freelancers, and new businesses the ability to easily accept payments and manage expenses through the use of a debit card and bill payment capabilities.

How Does Money by QuickBooks Work?

Once the mobile app is downloaded, the user can apply for a Money by QuickBooks account that has no monthly fees or minimum balance requirements. When their account is activated, they’ll be able to request and accept payments through debit, credit, and ACH transfer. Customers are not required to have the app in order for them to receive payment.

Users of Money by QuickBooks can request a QuickBooks Visa business debit card that allows them to access business cash through over 19,000 Allpoint ATMs nationwide. A small fee may apply if cash is withdrawn from a non-Allpoint ATM. The debit card and banking services are managed by Green Dot Bank, a partner of Intuit.

Why Should I Get a Money by QuickBooks Account?

If you are newly starting out as a freelancer or sole proprietor, Money by QuickBooks gives you access to a few features that aren’t available with typical business banking accounts. You’ll be able to easily see your business transactions and monitor your expenses through a clean interface on your mobile phone.

QuickBooks controls a significant amount of the market for small business bookkeeping software. Should you decide you need it, you’ll be able to easily integrate your financial data from Money by QuickBooks into the QuickBooks Online software.

Most freelancers and small business owners need bookkeeping software. It makes tax time a lot easier and provides them with valuable insights that they can use to improve their cash flow position and make strategic business decisions.

When you are just starting out, you may not know if your business will succeed or not. However, having the right tools available can help new entrepreneurs to start off on the right foot. Money by QuickBooks is one of those tools.

What Are the Advantages of Money by QuickBooks?

Money by QuickBooks includes an FDIC-insured bank account underwritten by Green Dot Bank. Using the bank ensures that your balance is protected up to $250,000 by the Federal Reserve. This protection means that if the bank should ever fail, your money is safe. While most checking accounts in the U.S. are covered by FDIC insurance, some aren’t.

The use of the Money by QuickBooks mobile app allows entrepreneurs the ability to have a quick peek at how their business is performing.

It can show you your earnings and expenses for each month, as well as by quarter or year. Other business bank accounts usually don’t have this ability. Instead, you’d need to comb through your monthly transactions to get insight into your company’s performance.

You’ll also have the ability to send payment requests from anywhere. If you operate a business that requires you to be on the road or outside of your home, this can be especially helpful.

Customers won’t need the app to pay you. When you send a request for payment, the customer will receive an emailed link that will allow them to pay via credit card, debit card, ACH transfer, or Apple Pay.

This flexibility is tremendously valuable for companies that want the ability to invoice their customers or give them options to pay but currently need to rely on cash, checks, or wire transfers because they don’t have any other payment processing structure.

Your bank account will be eligible for Same Day Deposit in most cases. This service means that payments received through the platform — whether in the morning, evening, or on the weekend — will be available for your immediate use. You can receive money in your account up to three times a day, including on holidays.

Many bank accounts offer financial services that allow their users to set up regular payments through an online banking feature. Money by QuickBooks has the same capability. This service helps to ensure that you pay your bills on time, never missing a due date.

How Much Does it Cost to Use Money by QuickBooks?

The mobile app and the debit card have no monthly fees or minimum balance requirements. You can easily make payments or use the Pay feature to make purchases with your debit card anywhere Visa is accepted.

The main competitors of Money by QuickBooks are Square and PayPal Business. Both offer similar features and a business debit card. However, their fees associated with collections are higher than those Money by QuickBooks is able to offer through Green Dot Bank.

Fees associated with accepting client payments from Money by QuickBooks, Square, and PayPal Business are indicated below. These fees are correct as of January 28, 2022:

ACH Bank Transfer

An ACH collection occurs when your customer sends payment to you via their bank using a routing code and account number.

There is a 1% fee charged on all Money by QuickBooks ACH collections, up to a maximum of $10. In comparison, Square charges a 1% fee with no maximum, and PayPal Business charges 3.49% of the transaction plus 49 cents.

Credit/Debit Card Receipts

If you send an invoice to your customer, who then pays you via the given link, a small transaction fee will apply to your collection if the payment is made via credit or debit card.

QuickBooks by Money charges a 2.9% fee for transactions received via credit or debit card payment. The maximum transaction that can be made through a credit or debit card is $100,00.

Stripe also charges a 2.9% fee, but there is an additional fee of 30 cents for all credit and debit transactions. The maximum transaction amount that can occur through this method is $50,000.

PayPal Business charges 3.49% plus a 49 cent fee on all credit and debit card transactions. Transactions are limited to $10,000 or less.

ATM Withdrawal Limit

Both Money by QuickBooks and Square impose a $1,000 limit on all daily withdrawals from the ATM. PayPal Business has a daily withdrawal limit of $400. If you typically withdraw cash regularly from your account, Money by QuickBooks and Square have fewer limitations.

If you decide to withdraw money from your account, you’ll need to do so from an Allpoint ATM. These are the only fee-free ATM locations supported by Money by QuickBooks at this time. Otherwise, you will pay a small extra fee for your withdrawal.

Can I Use Money by QuickBooks Without the Debit Card?

Yes, Money by QuickBooks can be used without ordering a debit card from Green Dot Bank. You are able to connect your current bank accounts with Money by QuickBooks and pay bills using the Pay feature, and you’ll also be able to send requests for payment to your customers.

Are There Any Disadvantages to Using Money by QuickBooks?

Money by QuickBooks is a great solution for those just starting out on their freelancing or entrepreneurship journey. It gives them the ability to quickly invoice their customers, collect payments, and manage business expenses. They’ll also have basic business insights to track their performance over time.

According to the current product information, Money by QuickBooks cannot be directly integrated or shared directly with QuickBooks Online.

However, you can still directly connect your Green Dot bank account with QuickBooks Online using their bank account connection feature. You just won’t see the same insights that you have with the Money by QuickBooks mobile app.

What Other QuickBooks Products Are Available?

There are a number of QuickBooks products designed with the small business owner in mind. The main offering by Intuit, QuickBooks Online, remains a mainstay for small businesses seeking an easily manageable bookkeeping solution.

Intuit QuickBooks allows you to manage your company’s business activities, including invoicing and payments. It also provides you with a set of financial statements that can be used to analyze your cash flow and business performance. You can use these statements and insights to make financial decisions for your company.

QuickBooks Online is also very helpful at tax time. You’ll be able to provide your accountant with a full set of financial statements that they can use to prepare your annual tax return. QuickBooks Online offers a variety of different pricing plans for individuals who are just starting out or running well-established companies.

Once you decide to use QuickBooks Online, you’ll be able to access data from a mobile app or anywhere with an internet connection. It is available for both Windows and iOS users.

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As a small business owner, you need accounting software that can help you manage your revenues and expenses, as well as provide you with the insight you need into your company’s current financial status. Financial management is an integral part of ensuring a company’s health and helps owners make strategic business decisions quickly. This article focused on Xero vs QuickBooks Online compares two common cloud accounting software programs popular with small business owners.

In this article, we’ll explore the accounting features that they offer and the differences between them.

What Is Xero?

Xero is cloud-based accounting software that allows freelancers, self-employed individuals, or small businesses to manage their finances and collaborate with their accounting team anywhere.

One of its key features is its unlimited number of user seats. This lack of a limit means that you may allow access to your business accounts to anyone that needs it without paying a higher price.

A few pricing plans are available for small businesses, but each is based on the transactions that a company incurs monthly. As more functions or scalability are required, monthly plan prices increase.

What Are the Functions Offered by Xero?

There are several features that Xero offers its customers to suit their business needs. Some of the main features include:

Invoicing

Xero offers advanced invoicing functionality to customize online invoices using their intuitive software. You can design an invoice template specific to your business that includes your company’s logo and payment terms. Additional fields allow you to list the services provided, include a price, and add a standard message.

What’s more, you’ll be able to accept online payments from your customers instantly using third-party payment services. Xero allows payment via debit and credit cards, as well as by direct debit. You may also accept payments through popular third-party payment providers such as Stripe or GoCardless.

Xero’s invoicing platform also allows customers to send automatic reminders to customers who are late on their payments. You can set the number of days payment is overdue before sending reminders. This approach allows you to pursue overdue collections without needing to resort to lots of time spent overseeing your accounts receivable.

Bank Reconciliation

Xero allows small business owners to connect their business bank accounts to the online accounting software, enabling collections and expenses to be automated.

You can easily match cash receipts with outstanding invoices and set up expense categories for recurring vendor payments. The bank connection feeds feature allows transactions to flow straight into the Xero accounting system each day.

The bank reconciliation process allows for easy AI-based matching, reducing the amount of time spent allocating your transactions manually at the end of the month. Xero can also suggest coding for certain expenses when provided with a bank rule.

Pay Bills

As your company receives bills, you can email them or scan them into the system for paperless record-keeping. Each bill remains accessible so that you may reference it in the future if needed. You’ll be able to review all bills payable and decide when to make payments to avoid late fees and maintain solid relationships with suppliers.

The ability to schedule payments in advance can be helpful for those who want to manage their cash flow and ensure that they have the monies available to pay their bills. You can easily monitor outstanding bills and set up automatic payments designed to safeguard against late payments.

Expense Reimbursement Management

The user-friendly Xero expenses reimbursement management application allows employees to submit claims on the go. They can take a photo of receipts or record mileage using the Xero mobile app on their phone. OCR technology allows for auto-filled claims, allowing for an expense claim in one click.

Once an employee expense claim is submitted, you’ll receive an automatic notification allowing you to review and approve it for swift payment. Claims are paid in the same way that you pay other bills.

The expense management module allows you to review expenses submitted by employee, status, account, and project. You can forecast and budget for employee expenses based on real-time submissions.

Project Tracker

As a small business owner, you will likely need to submit quotes for estimates of time and costs to prepare budgets with project management software.

With Xero’s project tracker, you can quickly send customized quotes or purchase orders to your potential customers. Once your client accepts a project, you can use the job tracker to track time using a timer and location-based tracking software on the mobile app.

The time tracker allows you to allocate time spent on a job directly to the project and customer. You’ll be able to see where employees have spent their time on a job and attach the time spent directly to the invoice for the customer.

Inventory

Xero’s inventory management software keeps track of the goods you have in stock as you buy and sell for your business. Up to 4,000 finished items may be monitored within the management system.

You can view the total value of your stock or search by specific item. It also includes helpful reporting that notes the best and worst-selling items. This data can be used to make better strategic decisions regarding the goods you offer for sale. The inventory management system is especially helpful for e-commerce companies.

Reporting

One of the most important features of an accounting software solution is its reporting. Reporting can be used to view the monthly income statement and balance sheet and track cash flow. When accounting is done in real-time, you’ll be able to make quick decisions based on current information.

Xero’s reporting module includes specific KPIs that can be used to track your company’s financial health. You’ll also have the ability to develop custom reports depending on your company’s needs.

Of course, your tax preparer will need a set of accurate financial reports to assemble your taxes. If you continue using Xero throughout the year to track your company’s finances, you can provide your accountant with access to your books so they can easily prepare your tax return.

What Are the Main Benefits of Xero vs QuickBooks?

Considering the number of features and ease of use that Xero offers, it’s important to note the benefits specific to the accounting software. These include:

Unlimited Users

The unlimited users feature is notable. QuickBooks Online charges a fee for user seats outside of its normal plans. Having unlimited users within Xero is helpful for companies that are growing or need to share financial data with accountants and tax preparers.

To provide an additional level of security, the account owner of a Xero plan can set permission levels for each user. This setting prevents data from being shared with those who don’t need a full picture of the company’s financials. The system also logs every action that a user makes to establish an audit trail.

Generate Multiple Financial Reports

Xero allows you to transform the data you enter into useful, actionable information. It provides a dashboard with specific KPIs, such as long-term trends, year-over-year income and expenses, and cash flow management tools.

You can also use the reporting tool to create your own reports. Some of the templates offered include an income statement, balance sheet, budgeting, and forecasting tools. Reports are customizable with adjustable formatting.

Time-Saving Tools

Xero accounting software’s quote and invoice system allows you to generate quotes to send to your clients quickly. Once a quote is accepted and you complete the job, you can easily turn the quote into an invoice. Customers can pay their invoices online by credit or debit card, eliminating the need for mail-in payments and saving time in collections.

What Are the Disadvantages of Xero?

There are two main disadvantages of using Xero from a small business owner’s perspective:

No Phone Support

While other competitors offer customer support over the phone, Xero does not. However, you can access their online support 24/7. If you have serious questions about the software and need help resolving issues, this can be a drawback. However, besides their online support, you may also access their library of online articles, webinars, and videos.

Limits on Bills and Invoices with the Entry-Level Plan

The least expensive subscription for Xero limits the number of invoices and bills you can transact monthly. Currently, you can issue up to 20 invoices and schedule 5 bill payments. If your company conducts more transactions, you’ll need to move up to their mid-level plan.

If you conduct business internationally, you’ll need to upgrade to their most expensive plan to access multicurrency transactions.

How Much Is Xero vs QuickBooks?

There are three pricing tiers available with Xero. The Starter plan includes limited invoicing and bill payments, along with the ability to reconcile your bank transactions and monitor expenses. This plan starts at $22 per month, but you may add on features that you need, such as analytics or tracking projects.

The Standard plan includes regular invoicing, bill entry, and reconciliation of bank transactions. It also allows for short-term cash flow and business snapshots. This plan starts at $35 per month. Like the Starter plan, you can add on certain features such as advanced analytics and expense reimbursement for a small monthly fee.

The Premium plan is designed for established businesses of all sizes. It includes all of the Starter and Standard plans’ features and the ability to manage multiple currencies. It starts at $47 per month, and you may add on additional items for a small monthly fee.

We will get into QuickBooks pricing below.

What Is QuickBooks Online?

QuickBooks Online is more established than Xero. It currently controls an estimated 80% of the market share for small business accounting in the U.S. Its online solution is cloud-based, similar to Xero, and you may access your company’s financial activities and use the software through a mobile app.

QuickBooks is a popular accounting software system for small and medium-sized businesses. It’s an ideal way to keep business finances organized and accurate. Like Xero, you’ll pay a monthly subscription fee to use it.

What Functions Are Included with QuickBooks Online?

Several features are provided for small businesses that manage their bookkeeping with QuickBooks Online. Feature sets associated with QuickBooks Online include:

Bill Payment Management

QuickBooks Online provides an easy user interface to manage company bills. Rather than using an Excel spreadsheet, you can easily scan or input bills into its bill payment module. Due dates for each bill are stored in the system, allowing you to manage the payments for each vendor and view when upcoming bills are due.

You may also choose to pay your bills online through the system using direct deposit, check, bank transfer, or a debit card.

Track Income and Expenses

Income and expenses are easily tracked and managed in QuickBooks Online. The software allows you to link your business bank and credit card accounts, and the software automatically records transactions that occur according to custom rules that you design.

You can also take photos of any expenses you incur through the mobile app, which will then transfer and classify them within your expense transactions.

Reports available through QuickBooks allow you to view your cash position, as well as income and expenses for each month. These income and expense tracking reports allow small business owners to make strategic decisions quickly to keep the business operating smoothly.

Invoicing Capabilities

Similar to Xero, QuickBooks Online allows you to design custom invoices that include your business logo, contact information, and details on goods and services provided. However, while the basic Xero plan limits the number of invoices you may issue each month, QuickBooks Online allows you to send unlimited invoices to customers.

Electronic invoices may be paid directly online by your customers through a button inserted on the face of the invoice. Once payment is received, it is automatically recorded within QuickBooks, keeping your financial records up to date.

QuickBooks also allows for progress or milestone-based invoicing. If you have a particularly large project, you can split invoices into multiple milestones, allowing for payment as each step is performed. Customers also stay informed of total amounts invoiced, what remains to be paid, and what has already been received.

Independent Contractor Management

If you have independent contractors, you’ll be able to send, track, and file 1099 forms for all of them. You’ll also be able to track the work they perform each month. Payments to independent contractors can easily be sent through the QuickBooks payment portal.

Estimates

If your company regularly prepares quotes for customers before accepting a job, the estimates module can be very helpful. You can design professional estimates that include discounts, payment terms, and other line items.

Once you’ve prepared your estimate, you can email it to your customer for approval. They can accept it immediately online or ask for modifications.

When an estimate is accepted and the job is completed, there is no need to create a brand-new invoice. Instead, QuickBooks allows you to convert the estimate into an invoice. You can make modifications if there are differences between the actual cost of the job and the initial estimate.

Each invoice includes a Pay Now button that allows customers to pay immediately via credit card, debit card, ACH bank transfer, or other payment services. Once payment is received, QuickBooks automatically records the payment and closes the invoice, keeping your books up to date.

Reporting

QuickBooks offers several reporting tools designed to assist small business owners with understanding the financial aspects of their company. Commonly used reports include the income statement, balance sheet, and cash flow report.

The software also includes functionality that allows you to design your own customized reports. You can use these reports to make business decisions or inform business partners or your accountant of specific performance aspects of your company.

Sales Tax

QuickBooks Online comes with a sales tax function that automatically adds sales taxes to an invoice based on the date, location, type of product or service, and customer. You won’t need to rely on sales tax research to ensure that you comply with your sales taxes; instead, QuickBooks Online tracks changes in rates for you.

Since sales taxes must be remitted monthly or quarterly depending on your location, you can automatically review your sales tax liability report that breaks down what you owe by location.

What Are the Main Benefits of QuickBooks Online?

Several benefits help QuickBooks Online continue controlling the small business accounting software market:

Record-Keeping and Reporting

There are several ways to track your income and expenses in QuickBooks. Since QuickBooks allows for many different fields that can slice and dice income and expenses, you can design some very robust reports, especially if you put the work into designing custom rules.

Like a full-scale ERP system, you’ll be able to attach documents, enter memos, and add reference numbers to each transaction you record.

Allows for Numerous App Integrations

QuickBooks Online gives you access to an impressive marketplace of over 600 apps — including third-party tools as well as add-ons. While you don’t need to use any apps to appreciate QuickBooks Online’s features, doing so can extend its functionality.

There are apps to help you prepare for taxes, apply for business funding, run payroll, manage customer accounts, and expand reporting functionality.

What Are the Disadvantages of QuickBooks Online?

While QuickBooks Online is a preferred accounting software solution, it does have its drawbacks:

More Expensive than Other Solutions

QuickBooks Online is a more expensive option than some of its competitors. Its most basic plan starts at $25 per month and can be used by only one individual. While you will get the most basic features to perform your accounting functions, others such as bill management and time tracking are only available in the more expensive plans.

Takes Time to Learn

If you are unfamiliar with basic accounting concepts, QuickBooks may take some time to use comfortably. The company does have tutorials and online support pages that you can use to mitigate the learning curve associated with QuickBooks. You’ll get more out of the system if you understand the product’s full functionality.

What Are the Pricing Plans for QuickBooks Online?

There are three QuickBooks Online plans available.

Simple Start is $25 per month and includes the most basic features of QuickBooks, such as tracking income and expenses, managing invoices, general reporting, and cash flow management. However, you will be limited to one user for the program. Bill management and time tracking are unavailable in QuickBooks Online.

The Essentials Plan includes all of the features of Simple Start but also provides enhanced reporting, additional users, bill management, and time tracking. This plan is available for $50 per month.

The Plus Plan version provides all of the features of the Simple Start and Essentials Plan options, plus inventory management and project profitability. You’ll have the full reporting functions that allow you to customize and design comprehensive reporting options. The Plus Plan allows for five users and costs $80 per month.

Which Is Better: Xero vs QuickBooks Online?

Xero vs QuickBooks- it’s a hard choice as both platforms offer a lot of value and have overlapping functionality. Their accounting tools are very similar, and the pricing structure isn’t that different. The standout option for Xero is the unlimited number of users — even with the most basic plan. However, with Xero’s starting plan, you are limited in the monthly number of invoices you may send customers.

QuickBooks has a strong user base and has great app integration. It has a more robust reporting function than Xero. The sales tax feature is especially helpful for companies that operate in multiple jurisdictions.

Overall, we favor QuickBooks for our platform of choice but it will be different for every business. When making a decision, you’ll need to consider the current needs of your business and choose the appropriate solution that makes the most sense for you. We hope this article helped shed some light on the benefits of using either platform.

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