Adding Finance Charges in QuickBooks

QuickBooks offers a relatively straightforward process for adding finance charges to overdue customer invoices. This feature can help encourage timely payments and recover some costs associated with late payments.

Setting Up Finance Charge Preferences

Before you can start applying finance charges, you need to configure your preferences in QuickBooks. These settings define how finance charges are calculated and applied.

1. Go to Edit > Preferences.
2. Select Finance Charge in the left panel.
3. Click the Company Preferences tab.
4. Check the Assess finance charges box.
5. Configure the following settings:
   • Annual interest rate: Enter the annual interest rate you want to charge.
   • Minimum finance charge: Specify the minimum amount you will charge, even if the calculated interest is lower.
   • Grace period (days): Set the number of days after the due date before a finance charge is applied.
   • Finance charge account: Choose the income account where the finance charge revenue will be recorded. This is typically an “Interest Income” or “Finance Charge Income” account.
   • Assess finance charges on overdue invoices only: Make sure this option is checked if you only want to assess finance charges on overdue invoices.
   • Calculate finance charges from due date: Select this option to calculate finance charges from the invoice due date. Otherwise, it will be calculated from the invoice date.
6. Click OK to save your settings.

Applying Finance Charges

Once you have set up your preferences, you can apply finance charges to customer accounts.

1. Go to Customers > Assess Finance Charges.
2. QuickBooks will display a list of customers with overdue invoices, based on your configured preferences.
3. You can review the finance charges calculated for each customer.
4. You can also manually adjust the finance charge amount for a specific customer if needed.
5. Select the customers you want to assess finance charges to. You can select all customers by clicking the checkbox at the top of the list.
6. Click Assess Finance Charges.

QuickBooks will create a finance charge invoice for each selected customer. These invoices are linked to the original overdue invoices and will be included in the customer’s statement.

Important Considerations

• Legal Compliance: Ensure your finance charge rates and policies comply with all applicable laws and regulations in your jurisdiction. Consult with a legal professional if you are unsure.
• Customer Communication: Clearly communicate your finance charge policy to your customers in your terms and conditions or other relevant documents. This helps avoid misunderstandings and maintain good customer relationships.
• Account Reconciliation: Regularly reconcile your finance charge income account to ensure accuracy.
• Consider Customer Relationships: While finance charges can incentivize prompt payment, consider the potential impact on customer relationships. Use them judiciously and consider waiving them for loyal customers on a case-by-case basis.

By following these steps, you can effectively utilize QuickBooks’ finance charge feature to manage overdue invoices and improve your cash flow.