Another unbalanced balance sheet

[Neil Williams]

On Tuesday 25 January 2005 7:35 pm, Robert Locke wrote:
> Actually, it is the application to the oldest invoice that in fact
> creates the most confusion in trying to reconcile between business and
> customer.

?? The solution to that is to send a statement that includes all relevant 
invoices and payments. In effect, you treat the customer in a way with which 
s/he is most familiar: a bank / credit card statement.

They start off with an opening balance, 0 hopefully, and a series of invoices 
and payments. The final balance clearly indicates the amount outstanding. If 
that happens to coincide with a specific invoice, fine.

> When a customer pays an amount that obviously belongs to a later
> invoice, then that invoice should be marked paid and the older invoice
> should be left open.

I don't know many businesses that can operate that way - certainly your bank 
and credit card companies do NOT!

> We both then agree that the older invoice has not 
> been paid.

It doesn't matter which invoice is unpaid as long as they are all to the same 
customer - what matters is that money is still outstanding.

> But when I, the business, apply the amount to the older 
> invoice, I believe the older invoice has been paid but the customer
> insists that the newer invoice I am now trying to collect on has already
> been paid - resulting in ill will.

Not at all, send a statement - not a copy of the invoice. It is the statement 
that gets paid, the money then gets attributed to whichever invoice is the 
oldest in order to minimise any interest payments that some customers will 
incur.

Don't you have a system to charge interest on bills oustanding longer than 30 
days etc.? (Many are 7 days, let alone 30.)

> It gets even worse when the invoices are for different amounts and we
> end up with tons of partial payments.  Ever tried to audit/reconcile one
> of those?

Easy with a rolling statement. I have to do it for all my customers.

> Nobody is on the same page then.  And the accounting system 
> and/or relationship takes the fall....

No. Don't you reconcile bank statements? You tick off each one and the test of 
whether it has worked is the FINAL balance, not any particular point along 
the way.

-- 

Neil Williams
=============
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