Customer Credits

#1

I’m really enjoying the straightforwardness of this program. It is clear, and fast. Thank you!

Customer credits was a bit hard to understand, and after reading quite a few posts, and looking carefully at the example in the guides, and testing it out, I have a question.

Here’s what I’m trying to do:
My client (I’m the bookkeeper) has a massage business and sells packages of 5 hour-long massages for a discount (buy 4 get 1 free type of thing). We would like to be able to track these. We also would love to use the customer credits feature because it would save him a step. But as I understand it, we don’t create a sales receipt when we sell credits - we just receive money posted to credits, and then use that for the service they use later. Is that right?

I suppose we could - at the time of service - make a sales receipt that was for the discounted service, but that would mean he’d have to remember to give them the discount? or they would bring him their credit note - kind of like redeeming a gift certificate? or … what’s the best solution to this?

Any thoughts, or updates to this topic you might have would be appreciated.

#2

Several thoughts, which might or might not help:[quote=“cobgarden, post:1, topic:4110”]
we don’t create a sales receipt when we sell credits
[/quote]

I don’t think it’s wise to think of “selling credits.” A customer credit is a liability the business has towards the customer. The customer has paid for something the business has not earned yet. A good example is a deposit against future work. So, while taking advantage of customer credits seems like a reasonable approach for the massage business, they wouldn’t be “selling” customer credits in a strict sense, just creating a customer balance that can be drawn against on each visit.

Your client has, in this case, sold 5 massages at a 20 percent discount. They could write up a sales invoice in this way, showing the full price and the discount amount. The problem with this approach is that none of the income has been earned yet. So it really is not correct to generate an account receivable. And you can’t allocate a sales invoice to customer credits. You could create a Prepaid Income (or some such title) liability account, to which a sales invoice could be allocated. But you lose the ability to associate later payments with a specific customer unless you laboriously transfer the prepaid amount to a customer credit via journal entry. That works for the occasional client, but is not very handy for a steady stream of routine customers.

Personally, I would go with receiving money against a customer credit account. This gives the advantage of forcing the business to maintain a file of customers, which could be useful for many things. It will be easy to know when the account is exhausted, but they will have to remember the discounted price at each visit. I guess that’s why so many businesses use punch cards or (these days) electronic swipe cards.

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#3

It continues to amaze me how helpful it is to just write about a problem - thinking aloud, as it were.

Here’s the pathway that worked itself out - I hope it is useful to others. Let me know if you see any downsides…

  1. Receive money, change accounts to “Customer Credits”, type in the Description as 5-pack so you can look it up when customer comes in to redeem the service.
  2. At time of receiving service, create Sales Invoice, but with Items that post only 1 of the 5-pack - but name the item 5-pack so the practitioner can easily pick the discounted service rather than the full price service.
  3. If a different service or a product is purchased by a customer with “5-pack” credits, it is easy to receive money for that service or product at the screen that shows the invoice paid in full (because of credits auto-applied). Hit Receive money and the credits will reverse and be available for next time.
#4

I tried your workflow, and it seems to go well enough. One trouble I might foresee is remembering who has the 5-pack credits if you get a lot of those clients. But making a practice of looking customers up in the Customers tab first should help manage that.

Whoever does the input for the massage business will have to understand to do two things:

  1. Enter the 5-pack purchase transaction at the discounted price. If one were to get that wrong, it would botch everything.

  2. Leave the default account allocation at your step #3 alone so the unrelated invoice is, in fact, cleared.

#5

Create a discount expense account and call it “Service Discount” or something. When a customer makes a prepayment. apply this journal entry. Let say a customer pays 100, 20 for every hour and there is a discount of 20%

Debit: Bank/cash Account 80
Debit: Service Discount 20
Credit: Customer credit 100

When a customer comes for the service, raise a sales invoice. Everything will be fine.
If your accounting is good everything will be fine

#6

If the sales or massage is surely going to fall in another year, you must remember to create an asset account called “deferred service discount” and debit that account instead of the “Service Discount”, so when the year arrives, do a journal entry and move all deferred discounts related to that year suffered on transactions into the “Service Discount” account to match the cost of that revenue to the revenue of that year. @Tut I need your input on this.

#7

I see no reason for a deferred service discount account at all. The original purchase of the 5-pack would go straight to Customer credits. This liability account will carry forward automatically. The sales invoices involved will be allocated to appropriate income accounts as the revenue is actually earned. Remember, under the scheme @cobgarden has suggested, all 5 massages are being entered at a 20% discount. Thus, this isn’t really “buy-4-get-1-free” with a different price for the last massage. This is, instead, from an accounting viewpoint, “buy-5-get-all-5-at-20-percent-off.” How it might be advertised and sold to the end user is irrelevant.

#8

I Just remembered that Manager does not allow for the use of cash and bank in Journal entries, so my earlier suggestion wont work.
I tried a way around it by using customer credit tab to record the entry but under the accounts i didn’t see Cash or bank there. :frowning:

#9

@cobgarden @Tut
This is the best way available in manager to go about your problem.

Follow these steps

*Use the receive money function to receive money from the customer. The account to receive the money from must be the customer credit account (Just below description field).
Let say a customer is making a prepayment for massage of 5 hours @ $20,000 for each hour which will amount to a cash discount of $20,000 for the customer or an hour free.

*Select customer credit under accounts on receive money page and enter the amount there $100,000 ($20,000 x 5) and add another line for entering of the discount.

*In the next line select the service discount account under accounts (You should create this account. Now I prefer you call it “Cash Discount allowed", the discount on the invoicing screen when raising invoices, quotes and orders are “Trade discount allowed” there is a difference and all can be used in one transaction. And there are Trade and Cash discount received too. Trade discounts don’t need to show in the accounts but cash discounts need to. Manager trade discount, that just by the way)

*when entering the cash discount amount start with a minus sign e.g. -$20,000. It will reduce the cash you are receiving and post the right amount ($80,000) in your cash/bank account. It will also post the right credit of $100,000 to the customer’s account, the discount will also be posted under expenses correctly.

*Whenever a customer comes for a service just raise a sales invoice, and his credit will be reduced or adjusted and the invoice will show “PAID IN FULL” on it. You wouldn’t need to worry about who paid for 5 hours service at a go for 1 hour discount and all that or how much is left for the customer and whatever, just make the right recording in the receive money page like above for prepayment attracting cash discounts or for every payment attracting cash discount and just be raising the invoices to the customers as they come for services to consume their prepayment to you, the customer balances will always guide you by showing everything.

Now if you carefully use this to record the advanced payment you wouldn’t have anything to worry about. The customer statement will show everything. :wink:

#10

@Abeiku’s idea shows that there is more than one way to accomplish things. I think you need to decide which is easier for your client to understand. In either approach, it may be useful to create sales invoice items for full-price and discounted massages.