I am hoping someone here can help me with this issue. A customers invoice went overdue and manager added a late payment fee to the invoice. A week later the customer paid the original invoice amount but not the late fee, leaving a balance due on that invoice. I had another invoice to send to the same customer so I added the overdue amount from the previous invoice to the total but now I don’t know how to credit that amount to the original balance?
First, good practice would have been to send a customer statement or another copy of the original sales invoice (which would show the payment and the late fee) rather than duplicate the fee on a new sales invoice that is unrelated.
Second, to reduce balance due on a prior invoice, issue a credit note. See https://guides.manager.io/7425. But this would not be considered good practice, because you are not actually reducing the amount owed on that invoice. So the reduction misrepresents the situation.
I sent the original invoice to begin with, then the revised invoice showing the overdue amount automatically included by Manager. After I sent a 3rd invoice with yet another revision (for another 30 days overdue) I received payment for only the original amount.
Instead of adding the overdue amount to a subsequent (and unrelated) invoice, should I send the one that shows their payment with the overdue amount still owing?
Thank you for your response, I am very new to all things bookkeeping/accounting.
From an accounting perspective, that would be my recommendation.
But you have a business decision to make, too. In my previous post, I explained the accounting issues. But it is quite frequent, when collection from a customer has been difficult, to forgive late fees and just be happy you have been able to collect the original invoice amount. Then you have to decide whether you will continue to do work for or sell products to this customer. What is the risk (and cost) to you if they don’t pay. Perhaps future orders should require a deposit or even full payment in advance, based on demonstrated poor credit performance. On the other hand, you may have few customers and feel you cannot forego sales to this one. In that case, you might just have to live with late payment.
That makes sense. From now on I’ll send out the revised invoice showing what’s left due for that invoice.
You make a very good point. As a fledgling business I find it difficult to turn away any customer, even one who consistently pays late. I have adjusted invoices for a few customers but I hesitate to make that common practice. I think I’ll look into monthly invoicing with net 60 terms as well, that may serve myself and my customers better.
Thanks again for taking the time to respond.