I provide a payment facilitation service to another party.
This party runs an eBay business for which it uses Amazon as the source for the goods.
I provide the other party with a credit card with which it buys the goods. The card receives a cashback for each purchase from which I get paid a portion (my fees)
The card is under my name, however, the card is paid off by the other party's U.S. bank account (it's bank is linked to my card account. The method of payment is Bill Pay which my customer setup in its online banking)
I don't know how to enter the above workflow in my books. Any ideas will be helpful.
Also, sometimes the credit card company mails a check to me, the account holder, in cases when my client overpay (pays more than the outstanding balance) and/or pay in advance.
If I then deposit such check, how do I enter it to the books in a way that doesn't classify it as an income as it is not (it is my client's money).
Last question first. Any money you receive in your name despite who you say it belongs to is income to you. If you then transmit the funds to your client then it is expense and is a wash.
Workflow for the rest. Enter credit card charges as YOUR purchase of items for resale. Enter the clients payment against your card as sales income of the items you just purchased. It is your card - these are your items not theirs - at least not until they pay you by paying your card.
This is a dangerous business to operate. What if they stop paying the card and you do not have possession of the goods It is your FICO score on the line
Regarding your last paragraph about the riskiness of the business model:
The client always prepays and overpays, meaning he setup his Bill Pay to always pay off the card balance before the statement is issued and in greater amount than what will be on it.
So there is no room for mistake here.
This business called Payment Facilitation and is common in the industry of eCommerce
In the bookkeeping workflow you suggested, how do I show that my only income is my portion of the cashback?. When client pays off the card he pays out-of-pocket less amount of what was purchased because the ongoing cashback is used as account credit, hence, to pay off the balance.
So basically most of the cashback goes to my client and I am left with small part of it as my income (profit) out of this business model
Is this card in your personal name or is it in the name of your business? If personal my take would be that as I described before, all the charges for purchases are your COGS (cost of goods sold) and all of the payoff of the card is in turn your income against those costs.
As a business account you would have to establish trust account relationships where you have written agreements to collect funds on behalf of client for disbursements - but even then it can be a little tricky to keep track of those balances and you would not be allowed to comingle any trust amounts between other clients.
Let me ask this, does this credit card ONLY accept charges on behalf of your sole client? I mean do you have more than one client charging on this card or expect to? Or (I hope not) do you also charge your own purchases on this card? That would constitute, in my view, co-mingling and the reasoning to claim all charges as your expense and all payments as your income.
As far as the excess the client pays on the card, how is that reconciled? How do you actually collect those funds unless you are also using the card?