How to post payments from debtors

kimmy007 · ‎September 18, 2017

My husband owns a collection agency, and sometimes he receives payments from debtors on behalf of his clients. His agency keeps 25% and sends the clients 75% the following month (after payment is received from debtor). We have QB desktop Pro 2017. I have searched and searched all over the internet on how to do this. I've contacted QB support and the rep. suggested that I upgrade to the more advanced QB (I forgot what she called it) in order to be able to do this, because she said it can't be done in this particular version, nor in QB online. I just don't understand why it can't be done.

Can someone, please, please help me with this? How would I post this in QB? What's the simplest way? And please, use "dummy" terms. I'm just learning QB and I am pretty confused and overwhelmed with it right now.

Thanks

Adam_Fenner · ‎September 18, 2017

@kimmy007 This is complicated for a lot more reasons that you think. And I'm going to do my best not to be too accounting geeky on it.

My understanding of the collections business is that your husband somehow acquires the right to attempt to recoup this debt payment from the debtor on behalf of his clients. And he gets a 25% cut. My explanation to follow will be based on my understanding. So, if I'm wrong stop reading and simply correct me.

Because of the high risk of uncollectibility it is best not to accrue a liability (debt or loan) for each debtor. Because the risk is simply too high. In a weird way it is almost like a loan on consignment, so think of it more like inventory. The cash received would be 75% cost of goods sold, and 25% net income. But only after the cash is received.

Here is an article discussing how to handle consignment inventory, and eventual sale. Simply supplement the word Consignment" for "Collectible debt" or whatever makes the most sense for your business.

https://www.accountexnetwork.com/blog/2012/05/consignment-goods-with-quickbooks/

I'm not sure if that helps. Best of luck to you. If you need more help let me know.

Adam

View solution in original post

SBC_INC · ‎October 18, 2017

You are receiving & depositing 100% of funds from Delinquencies/Collections that belong to your Customers. You should post 25% to an INCOME account and 75% to a LIABILITY account. This way you can track your liabilities (balance of monies that belong to your clients)... As you remit funds to your clients you will see the Liabilities Account reduce to zero.

EXAMPLE: Say you just collected $1,000 from a delinquency who owes $5,000 total. Furtheremore, you resonably expect to collect $1,000/month until $5,000 is paid in full.

1. Use ENTER SALES RECEIPT form in QB to record the date, payment type, and Check # (if any). The Sales receipt should reflect 2 line ITEMs: 25% Fee Income and 75% Due to Clients. You can use QTY of .25 and .75 respectively and $1,000 as AMOUNT on both lines.

Spoiler

Another field is the Sale # (or Transaction#) which is used incrementally by QB as a Sales Receipt Number. This is used as a receipt you can track against the delinquent customers' payments should proof be required later.

2. Go to BANKING>>DEPOSIT to post the $1,000 payment.

Spoiler

Make sure that payment clears well before paying your client -- as I am sure you already do!

3. Write a check for $750 to your Client against the Liability ACCOUNT associated with the 75% Liability you would have set up in your Chart of Accounts and ITEM LIST.

Hope this helps!

View solution in original post

Adam_Fenner · ‎September 18, 2017

@kimmy007 This is complicated for a lot more reasons that you think. And I'm going to do my best not to be too accounting geeky on it.

My understanding of the collections business is that your husband somehow acquires the right to attempt to recoup this debt payment from the debtor on behalf of his clients. And he gets a 25% cut. My explanation to follow will be based on my understanding. So, if I'm wrong stop reading and simply correct me.

Because of the high risk of uncollectibility it is best not to accrue a liability (debt or loan) for each debtor. Because the risk is simply too high. In a weird way it is almost like a loan on consignment, so think of it more like inventory. The cash received would be 75% cost of goods sold, and 25% net income. But only after the cash is received.

Here is an article discussing how to handle consignment inventory, and eventual sale. Simply supplement the word Consignment" for "Collectible debt" or whatever makes the most sense for your business.

https://www.accountexnetwork.com/blog/2012/05/consignment-goods-with-quickbooks/

I'm not sure if that helps. Best of luck to you. If you need more help let me know.

Adam

Rustler · ‎September 19, 2017

Kim

There is no reason at all to upgrade to enterprise, premier might be beneficial down the road, but pro will do fine.

I would disagree with the consignment concept, especially as layed out in the sleeter article.

That said I agree that you should not enter all prosepctive debts in QB when you get them, manage them using a spreadsheet or a contact management software package.

When you get paid a settlement, then I would deposit the payment and use a client liability account as the source account for the deposit.

When the time comes to pay the client, I would, in check detail
list the liability account and the total amount collected
then follow that with your income account, and enter the commission amount as a negative number (do the math manually, it is actually pretty easy to do)

Adam_Fenner · ‎September 19, 2017

I don't disagree with @Rustler's approach either. The thing with this is there are a few ways to get it done. Whatever you do, do it the same way each time. Better to be consistently wrong than inconsistent.

You need to make sure that you accomplish these things:

1. Recognize the revenue from reciept of payment.

2. Recognize the expense of paying out the debtor

Howevery you accomplish that, is a business decision that you need to make, it may be worth consulting with your tax professional. They may have a specific way they want it to make sure that your taxes remain in order.

amca69 · ‎October 17, 2017

Hello... i just started a collections agency myself... i dont have an answer but rather a question... i was told i had to have two separate bank accounts... one had to be a trust account for receiving and sending money for my clients and their consumers and the other for the business operations... would you mind sharing how you were able to set that up in QB? assuming you have the same dilemma...

Thank you!

amca69 · ‎October 17, 2017

Hello Rustler... it looks like QB changed the name of their plans but i just wanted to ask...im enrolled in the QB essentials version and i wonder if i need to upgrade to the PRO version in order to be able to set up my trust and operations accounts ( i was told i had to have two separate accounts... and i just hope that i dont have to pay two accounts in QB in order to be able to produce financial statement separately!)

Thank you!

Rustler · ‎October 18, 2017

@ amca69

Sorry my fault, I should have asked if you were using QB Online or QB desktop. No the plan name did not change, pro, premier and enterprise are desktop software. Simple start, essentials, and plus are QB online.

Trust accounting is not my area for the most part, but as I understand it QBO plus with classes and locations should be able to do it for you. Class or location tags allow for a P&L for each, but no balance sheet by class or location.

SBC_INC · ‎October 18, 2017

You are receiving & depositing 100% of funds from Delinquencies/Collections that belong to your Customers. You should post 25% to an INCOME account and 75% to a LIABILITY account. This way you can track your liabilities (balance of monies that belong to your clients)... As you remit funds to your clients you will see the Liabilities Account reduce to zero.

EXAMPLE: Say you just collected $1,000 from a delinquency who owes $5,000 total. Furtheremore, you resonably expect to collect $1,000/month until $5,000 is paid in full.

1. Use ENTER SALES RECEIPT form in QB to record the date, payment type, and Check # (if any). The Sales receipt should reflect 2 line ITEMs: 25% Fee Income and 75% Due to Clients. You can use QTY of .25 and .75 respectively and $1,000 as AMOUNT on both lines.

Spoiler

Another field is the Sale # (or Transaction#) which is used incrementally by QB as a Sales Receipt Number. This is used as a receipt you can track against the delinquent customers' payments should proof be required later.

2. Go to BANKING>>DEPOSIT to post the $1,000 payment.

Spoiler

Make sure that payment clears well before paying your client -- as I am sure you already do!

3. Write a check for $750 to your Client against the Liability ACCOUNT associated with the 75% Liability you would have set up in your Chart of Accounts and ITEM LIST.

Hope this helps!

amca69 · ‎October 18, 2017

WOW!!!!
Hello SBC_INC... THANK YOU SO VERY MUCH!!!
I will defenitely use this information for my QB Accounting... you went beyond any explanation i expected from anyone... thank you to you too Rustler...
This means a lot... as a new business owner anything that can keep control of it in the ownwer uands is a big plus morally and of course financially... thank so very much!
Sincerely,
amca69

amca69 · ‎October 18, 2017

Hello Rustler... thank you for the explanation about the different desktop and online versions... i have both in my Mac and i had the impression that both would work the same only that one (the desktop) did not need to be connected to the internet... are there many differences besides the need and or the ability to be online?

Thank you!

Rustler · ‎October 19, 2017

@amca69 wrote:

Hello Rustler... thank you for the explanation about the different desktop and online versions... i have both in my Mac and i had the impression that both would work the same only that one (the desktop) did not need to be connected to the internet... are there many differences besides the need and or the ability to be online?

Thank you!

Yes there are major differences in fuction as well as how entries are made, a non partisan comparison of QBO vs QB desktop
http://onsale-apparel.com/Rustler/qbo-or-qbdt

I use windows so that comparison is based on windows QB, but since Mac QB is discountinued after the 2016 version .....

Anonymous · ‎November 10, 2017

Thank you very much!

Anonymous · ‎November 10, 2017

Appreciate your help.

Rustler · ‎November 11, 2017

You're Welcome

Anonymous · ‎November 11, 2017

Thank you, SBC_INC. I'm actually trying to follow what you've explained, but I'm still having some issues with this. I hope you can understand, I"m a newbie with no accounting background. And this gets very confusing.

So here goes:

Some debtor check payments we receive are processed through a third party processing company, and they charge fees for each transaction.

For example: Debtor makes a $500 payment, and a $15 processing fee is attached, therefore, making the total payment of $515 that is deposited into our bank account.

So we have to minus the $15, then take the company's 25% portion from the $500, which is $125, then send the remaining amount, 75%, to the client ($375).

Question 1:: When I create a sales receipt for this transaction, how do I set it up? Would I need 3 line items with these 3 amounts (income: $125, liability: $375, ck. process. fee: $15) showing a total of $500, or do I only include the check processing fee on the deposit form as -$15?

**I wasn't sure if I'm suppose to enter the total $515 (on the sales receipt) showing only 2 line items (income @ 25% of $515 & liability @ 75% of $515 - whatever these amounts are) or 3 line items (income @ $125, liability @ $375, ck. process. fee @ $15).

Question 2:: On the sales receipt from the "Item" drop down menu, what do I select for each line?

**My husband has a prepaid account with the check processing company, and the fees for each check are taken out each time a check is processed. Not sure if this matters, but thought I'd mention it. Should this (check processing fee) be listed as an expense in my Chart of Accounts?

I hope what I'm asking you here does not confuse you.

Thanks!

Topics

Training

Community

Resources

How to post payments from debtors