Record payments by the job or by oldest first?
Thread poster: John Fossey

John Fossey  Identity Verified
Canada
Local time: 13:56
Member (2008)
French to English
Mar 13, 2012

I have an agency client who sends me many small jobs. Payments are made when the end user pays, a practice which I don't like but live with, in this case, since their overall payment pattern is acceptable, taken as a whole.

The question I am wondering is what is the best way to allocate these payments in my own record of accounts receivable.

Since the agency pays by the job when they are paid, they will typically send me a payment marked to be allocated to a series of jobs. Some jobs are paid quite quickly, even right away, but some are very old, over six months. The result is that the agency's account shows up in my books as having some very old unpaid amounts, although taken as a whole the payment record is not too bad.

I am considering changing the way I record payments and insisting that payments received be allocated to the oldest amounts due to me. This will mean that these old amounts will be off my books, but I know it will scramble the agency's records when I tell them that the old amount has been paid (which they have not recorded as being paid) while younger amounts (which they have recorded as paid) I show as still outstanding.

I'm interested to know if anyone else has had this kind of experience and how it worked out.


 

Sheila Wilson  Identity Verified
Spain
Local time: 18:56
Member (2007)
English
+ ...
Tax rules? Mar 13, 2012

Hello John,

What do your tax rules impose? Are you taxed at the point of issuing the invoice or at the point of receiving payment? I would have thought that that would be important to you in organising your records. I don't have anything else to offer in advice as I lead a quiet professional life in comparison.icon_smile.gif

Sheila


 

John Fossey  Identity Verified
Canada
Local time: 13:56
Member (2008)
French to English
TOPIC STARTER
Taxed when invoice issued Mar 13, 2012

Sheila Wilson wrote:

Hello John,

What do your tax rules impose? Are you taxed at the point of issuing the invoice or at the point of receiving payment? I would have thought that that would be important to you in organising your records. I don't have anything else to offer in advice as I lead a quiet professional life in comparison.icon_smile.gif

Sheila


Tax rules take account of when the invoice is issued, not paid.

But that's a good point to stress to the agency, to reinforce my need to account for payments oldest first - the sales tax on those old invoices was remitted long ago.

[Edited at 2012-03-13 19:12 GMT]


 

Anne Bohy  Identity Verified
France
Local time: 19:56
English to French
Don't try to change agency's rules! Mar 13, 2012

I wouldn't try to ask the agency to change its rules. Moreover, it's best to apply the payment to the jobs indicated, otherwise you will always end up with invoices partly paid, which is not very handy to manage. BTW, you don't say which software you use?
If you invoice monthly, or for each job? In such a case, I think you should invoice each job separately. You can run an Accounts Receivable Aging Report, and do some statistics... If you have some indication about the end customer, you should record this info too...
Personally, I would try to avoid as much as possible the jobs from the end customers which pay very late. If the agency simply passes the burden onto you, I think it is acceptable that you indicate to the agency that the conditions set by some of the end customers are unacceptable to you, and to refuse to work for these particular customers.


 

Charlie Bavington  Identity Verified
Local time: 18:56
French to English
Do as you do now Mar 14, 2012

Other wise it seems to me possible for a payment to slip thorugh the next entirely and never be paid. At least this way you are doing a proper reconciliation/matching exercise, even if you do find it unsatisfactory for other reasons.

 

Alex Lago  Identity Verified
Spain
Local time: 19:56
Member (2009)
English to Spanish
+ ...
Accounting needs to give a fair image of your business Mar 14, 2012

You need to be careful with this as depending on accounting laws in Canada doing what you suggest could be illegal and could cost you a tax penalty.

If you are required to have accounting books, your accounts have to paint a fair image of your business, that means that invoices have to be tied to a payment for that invoice you can't compensate the amounts, so if possible I would check with a CPA or tax lawyer before doing this.


 

John Fossey  Identity Verified
Canada
Local time: 13:56
Member (2008)
French to English
TOPIC STARTER
Will have to consider Mar 14, 2012

Thanks for all the suggestions. I will have to consider what to do.

I do use Sage accounting software which keeps a perfect track of everything. As far as the tax is concerned, my accounting is based on the accrual method which means that tax is based on when the invoice is issued, not when (or if) it is paid. That way the tax man gets his share as early as possible - by the end of the month following the invoice date - leaving me to finance him for slow payers. He doesn't care when I get paid (unless I never get paid and claim the bad debt as an expense).

[Edited at 2012-03-14 03:25 GMT]


 

Vladimír Hoffman  Identity Verified
Slovakia
Local time: 19:56
Member (2009)
English to Slovak
+ ...
Each job should be recorded under its own Mar 14, 2012

PO number. You should keep an udated list of jobs performed for the agency (with copy being kept at the agency). When the agency receives a payment from the client, they should inform you on respective jobs (PO numbers) to be allocated to the payment. Based ín it, you can issue final invoice, which will be paid-up immediately (as the agency already received the money), and update he table.
Hence, you will keep records of all unpaid jobs and have no unpaid invoices. If your accounting rules require so, all due payments could be settled at the end of the year.

In my opinion, simple Excel sheet is sufficient for the purpose. Alternatively, you could try if Sage can provide you with listing of all uninvoiced and unpaid jobs made for specific agency. This would be your list of jobs.


John Fossey wrote:

I have an agency client who sends me many small jobs. Payments are made when the end user pays, a practice which I don't like but live with, in this case, since their overall payment pattern is acceptable, taken as a whole.

The question I am wondering is what is the best way to allocate these payments in my own record of accounts receivable.

Since the agency pays by the job when they are paid, they will typically send me a payment marked to be allocated to a series of jobs. Some jobs are paid quite quickly, even right away, but some are very old, over six months. The result is that the agency's account shows up in my books as having some very old unpaid amounts, although taken as a whole the payment record is not too bad.

I am considering changing the way I record payments and insisting that payments received be allocated to the oldest amounts due to me. This will mean that these old amounts will be off my books, but I know it will scramble the agency's records when I tell them that the old amount has been paid (which they have not recorded as being paid) while younger amounts (which they have recorded as paid) I show as still outstanding.

I'm interested to know if anyone else has had this kind of experience and how it worked out.


[Edited at 2012-03-14 11:00 GMT]


 

JaneD  Identity Verified
Sweden
Local time: 19:56
Member (2009)
Swedish to English
+ ...
Agree Mar 14, 2012

bohy wrote:
Personally, I would try to avoid as much as possible the jobs from the end customers which pay very late. If the agency simply passes the burden onto you, I think it is acceptable that you indicate to the agency that the conditions set by some of the end customers are unacceptable to you, and to refuse to work for these particular customers.


If you are happy accepting that the agency doesn't pay you immediately then I think you are perfectly justified in refusing jobs for end clients who typically pay with long credit terms. Of course when they are not repeat clients that might be difficult, although under the circumstances the agency should be willing to tell you what credit terms they have agreed with a particular client.

Personally I would also refuse to work for an "agency" that did not shoulder its share of the burden - ie that refuses to pay its translators before it gets paid by its end client. Otherwise you risk not being paid ever for any given assignment you do for that agency.


 

Tina Vonhof
Canada
Local time: 11:56
Member (2006)
Dutch to English
+ ...
Canadian tax rules Mar 14, 2012

Hi John,

You say: Tax rules take account of when the invoice is issued, not paid.

My accountant says exactly the opposite: It isn't income until the money is actually in the bank.

It makes sense to me because what if the customer never pays? Then you have already paid tax over income that you didn't receive in that year. And how would you account for payments received in the following year that you paid tax over in the previous year? In both cases, how would you reconcile that with your bank statements? It would be a nightmare.

I declare only the payments that I have received in the past year and I always have some unpaid invoices from November and December that must be carried over into the current tax year. I record my invoices in a spreadsheet and at the end of the year I cut and paste any unpaid ones into my spreadsheet for the new year.




[Edited at 2012-03-14 16:36 GMT]

[Edited at 2012-03-14 16:39 GMT]


 

John Fossey  Identity Verified
Canada
Local time: 13:56
Member (2008)
French to English
TOPIC STARTER
Cash vs. accrual method of accounting Mar 14, 2012

Tina Vonhof wrote:

Hi John,

You say: Tax rules take account of when the invoice is issued, not paid.

My accountant says exactly the opposite: It isn't income until the money is actually paid. It makes sense to me because what if the customer never pays? Then you have already paid tax over income that you didn't receive in that year. And how would you account for payments received in the following year that you paid tax over in the previous year? In both cases, how would you reconcile that with your bank statements? It would be a nightmare.

I declare only the payments that I have received in the past year and I always have some unpaid invoices from November and December that must be carried over into the current tax year. I record my invoices in a spreadsheet and at the end of the year I cut and paste any unpaid ones into my spreadsheet for the new year.


It depends on whether you are using the cash or accrual method of accounting.

Usually, when a business issues credit (net 30 days invoicing), as opposed to one that deals in cash at the time of the transaction, the accrual method is expected since it gives a more accurate reflection of the state of the business, by matching revenues with the time when their related expenses were incurred. If you had a sales tax audit (I've had many) the cash method could well be questioned, since the work was done and invoiced in the tax period in question, even if only paid for in a later period.

Your accountant is using the cash method. As stated earlier, I use the accrual method.

Non paying customers are charged as an expense against the Provision for Bad Debts account at the time when the decision is made to write them off. It's really not a nightmare, it's standard accounting practice.

[Edited at 2012-03-14 17:14 GMT]


 


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