Some businesses receive retainers or deposits from customers before performing any services. When they invoice customers for services, those invoices are paid using the money from the deposits.
You can set up a deposit or retainer process for your company in QuickBooks Online. The retainer or deposit is treated as a liability to show that, although your business is holding the money from a deposit or retainer, it doesn't belong to you until it's used to pay for services. When you invoice the customer and receive payment against it, you'll turn that liability into income.
The steps in the following sections will guide you through:
The first step in setting your company up to record retainers or deposits is to create a liability account to track the amount of the retainers you receive from your customers.
To create the necessary liability account:
Once you have created the account to track retainers or deposits, the next step is to create an item to use when accepting retainers or deposits.
To receive deposits or retainers from your customers, you will need to create a retainer service item:
To create the service item:
The retainer item can now be selected when creating an invoice or sales receipt for a deposit or retainer payment.
Not everyone will need to complete step 3. If you keep the money from customer retainers and deposits in a separate trust account, you will need to follow this step to set up a trust liability bank account in QuickBooks Online.
If you keep the money in your own operating account, this procedure is unnecessary. When in doubt, try to reflect your real-world situation as much as possible.
To create the trust liability bank account:
You can now use this account for retainers or deposits.
Once you have set up the accounts and the retainer or deposit item, you can begin to create Sales Receipts for the deposits or retainers you receive.
If you prefer, you can invoice customers for deposits or retainers rather than receiving them directly. To do so, skip this step and go directly to Step 5.
To create a Sales Receipt for a deposit or retainer payment:
In addition to adding the retainer or deposit amount to the specified bank account, this increases the amount in your liability account to show that the money isn't truly yours yet, and to avoid treating it as income until later.
Instead of creating Sales Receipts for the deposits or retainers you receive (Step 4), you can invoice customers for deposits or retainers rather than receiving them directly.
The steps to do so are similar to creating a Sales Receipt except that you won't select a Deposit To account until you receive payment against the invoice.
To create an invoice for a deposit or retainer:
The invoice for the deposit or retainer amount is created.
When you charge a customer for the services you perform for them, you can turn the retainer or deposit you previously received into credit on an invoice and receive it like a payment.
To credit a retainer or deposit on an invoice:
This decreases the amount in your liability account and applies the credit to your customer's invoice, turning it into income. The money is now yours.
If you created a separate trust liability bank account to hold retainers or deposits, once you have turned the retainer into income, you can transfer that money to your operating bank account.
To transfer the retainer amount:
The money is recorded as having moved from the special trust account to your business's own operating account.
You can track how much of a retainer or deposit you are holding for each customer from the Balance Sheet report.
To review retainers or deposits by customer on the Balance Sheet report:
You can now see each customer's retainer or deposit balance, as well as a record of transactions that have affected this balance.
To reduce the number of results to view, you can change the report period to display a narrower date range, or select the small triangle next to a customer's name to collapse their details.
|Tip: Select the Save customization button to save the customized report and access it in the future from the Custom Reports tab.|
If your business pays for customer expenses using the money held in the liability account, you must create a special item to track these expenses, as they should not appear on your Profit and Loss report.
For example, if you are a law firm that received a settlement from a court on a client's behalf, and you pay for the client's medical expenses out of it, with the intention of passing the remainder to the client, you must hold the settlement and pay the expenses from a dedicated account to keep them separate from your business accounts.
To set up the necessary item, first verify that you have Track Expenses and Items by Customer enabled:
Expenses and items are now tracked by customer, enabling you to view transactions and their effect on the customer's retainer.
The next step is to create the item to track these expenses:
The item for the retainer is created. The next step is to pay the customer's expenses:
The expense reduces your liability account and your chosen bank account without affecting any of your business expense accounts.
Now you know how to create, manage and track retainers.