I am conducting work for a client but billing through a third-party. The third-party charges a 5% billing fee and I invoice the third party. I invoice them with a single line item for the full amount that they need to charge the client.
When the third-party pays me, I receive the invoiced amount - 5% and that is what I “receive” against the invoice. How do I account for the remaining 5% when receiving money?
Let me make sure I have this correct:
You do 100 worth of work. You invoice the 3rd part for 105. The third party pays you 100. If that’s right, do the following:
Receive money against the sales invoice for 105, allocated to Accounts receivable. That will completely satisfy the sales invoice and leave the third party with no balance in Accounts receivable. But add another line item, entered as a negative number on the receipt, for -5. Allocate that line to some expense account like Billing commissions. The total of the receipt will now match the amount received into the bank or cash account.
My interpretation of his request is slightly different to yours Tut:
Do 100 worth of work
Invoice third-party 100
Third-party charges the client 100
Third-party forwards 95 back to you, taking their 5 for fees.
Implementation is the same (needing the extra line item with -5), totals are slightly different.
To me, this sounds very similar to e.g. PayPal payments - we sent a client an invoice for a certain amount, but PayPal takes their share of that so you end up with slightly less than what you invoiced for. This gets logged as an expense (PayPal fees).
It’s exactly the same. And you’re right, it doesn’t matter where the billing fee is added. The point is to subtract it on the receipt while still showing the full amount invoiced so Accounts receivable clears properly.
Very similar to PayPal…
I work 100 for the client and invoice 100 to the third-party.
The third-party sends and invoice for 100 to the client.
I receive a payment back from the third-party of 95… so to what account (expense?) do I put the -5%…and can I use an expense item in an invoice (which is income?)
As per Tut’s reply:
You would have two line items.
First one: Receiving the 100, account is an income account (e.g. Accounts receivable)
Second one: For -5, account is an expense account (e.g. “Billing commissions” … or “XYZ Co Fees” … etc)
The invoice only has the 100 that you’re “charging” the third-party.
When you ‘Receive money’ that has the two line items (100 received, -5 fees).
Because the 100 received offsets the Accounts receivable balance, that marks the invoice for 100 as fully paid.
Thanks, that seems to do it!