Another unbalanced balance sheet

[Dale Alspach]

>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.

How do decide which are relevant? The customer may be disputing one of the
charges or may not have paid for one of them because he is returning the
item. To the customer the ones he did not pay for are relevant but by your
approach will not appear on the statement if the total payments surpass the
charges as of the date of that invoice.

>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!

Actually Lowe's, a major building supplier in U.S., just implemented
exactly such an online system for their business customers. The customer
checks off the invoices he is paying and the credits he is recognizing.
Then he makes his payment.

>> 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.

I think you are speaking for yourself not the customer.

>> 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.

You seem to be assuming that there is no returnable merchandise or
possibility of dispute of a particular item.

>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.

Would it not be impossible to know what was happening if you were balancing
your checkbook and you went through your
checks and just marked enough to cover the total amount that was disbursed
from your account without regard to which checks had actually been paid?
That is exactly what you are advocating.
>-- 

Dale Alspach