Best Practices for Invoicing and Inventory

Britta_Peterson · ‎April 01, 2021

I have been having issues coming up with a good solution to our inventory issues for quite some time now. I'll try to explain my situation as clearly as possible. I am the office manager and bookkeeper for a smart home automation company where we install technology solutions in residential and multi-unit apartment buildings. We do a lot more than just smart homes though - we also install speakers, entry access solutions, security camera systems, etc.

We often set up a payment structure for our projects as follows: 40% of the overall price of the project is due as a deposit, before any work is completed. Once deposit is received, we go out and do the wiring for the property. Once the prewire phase is completed, we charge another 40% of the overall price as a progress payment. Once this is received, we order all of the product and then install it. Once installation of product is complete, we charge the remaining 20% of the project.

The issue I'm having is deciding how to invoice. Until now, I have been creating the invoice before any money is received so that I have something to apply the deposit payment to. This is an issue thought because this is causing our inventory counts to go negative right from the start, as we don't order anything until practically halfway through the project. I've attempted to switch over to progress invoicing. However, this makes no sense. There are two ways I have tried to accomplish this, and neither seem to make any sense:

- if I create a progress invoice for 40% of the overall price, QB basically creates an invoice for 40% of each line quantity. So we get into a situation where I've now invoiced for 10.6 speakers, 2.4 amplifiers, 8.3 brackets, etc. (just an example, these numbers are made up). This makes ABSOLUTELY NO SENSE. You can't have partial speakers, etc. Products don't work like that.

- If I create a progress invoice for custom amounts for each line, say I invoice for 100% of just the wiring itself as a deposit, then 100% of the products themselves at the progress payment phase, the payments are then completely off, as the wiring itself is in reality only about 5% of the total cost, but the products themselves may be about 75% of the total cost. And we bill in equal amounts of 40% / 40% / 20%.

I have been considering just keeping the estimate in QB until the very end and then once all payments are received, turning it into an invoice and applying all 3 payments to that invoice. However, then it's not accurately reflecting income and the partial payments aren't tied to anything at all. Also I was considering created a delayed charge for the projects, but I don't believe you can apply payments to a delayed charge, only invoices.

How would you guys handle a situation like this? Our system has been pretty haphazard until now and I would like to tighten it up.

BettyJaneB · ‎April 01, 2021

I appreciate you for providing complete details about your invoicing concern, @Britta_Peterson.

I'd like to give some insights regarding the invoice procedure of your business.

Creating an estimate to track the process made for your customer's transaction would be the best way to handle your business situation. This way, you can generate a concrete invoice afterward once the entry has been completely processed.

Know that an estimate will not reflect on your receivables since it's a non-posting transaction. This will only show up upon invoicing them. To ensure that the partial payment will be applied to the invoice, make sure to select the correct payment method.

Here's how to do it:

Open the invoice you want to pay and click the Receive payment button.
In the Receive Payment window, enter the Payment date, the Reference no., and the Deposit to account.
Select the Payment method you want to use.
Mark the invoice you want to pay under the Outstanding Transactions section.
Enter the amount the customer paid using the payment method in the PAYMENT field.
Make sure it matches the Amount received field.
Click Save and new. You'll still be in the Receive Payment window.
Select the Customer and repeat steps 2-7.
Make sure you select the correct Payment method.

Here are some links that you can use for reference:

On the other hand, your bookkeeper knows your business and industry and customizes your setup accordingly. You can always reach out to them for the best advice. You may also visit our bookkeepers here: QuickBooks Live Bookkeeping.

Let me know if you have follow-up questions about this or with QuickBooks. I'd be glad to clear things up for you. Keep safe!

Fiat Lux - ASIA · ‎April 01, 2021

@Britta_Peterson

As another option, explore a construction management app or a project management app to integrate with your QBO.

Britta_Peterson · ‎April 02, 2021

Thank you for your suggestion, we actually already use DTools for our project design, and I port the projects over to QB through its integration feature.

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Best Practices for Invoicing and Inventory