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Customer accounts, set them up as open Item or balance forward, what this means and which do you use |
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Written by Nilsson Denver
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Tuesday, 02 September 2008 05:01 |
When you send a customer a statement that is "Open Item", this means that when you print out a customers statement, every invoice that is unpaid will be shown on the statement. Each unpaid item will be listed in date sequence.
Customer Statement at 28th Feb 2008 (Open Item)
Date
| Transaction
| Debit
| Credit | Total
| 5 Jan 2008
| Invoice 101
| 150.00
| | 150.00
| 20 Jan 2008
| Invoice 135
| 250.00
| | 400.00
| 01 Feb 2008
| Invoice 159
| 210.00
| | 610.00
| 25 Feb 2008
| Invoice 178
| 199.90
| | 809.90
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When you send a customer a statement that is "Balance Forward", this means that when you print out a statement, all the unpaid invoices, credit notes, unallocated payments from the previous months are totalled together and this amount is shown as the opening balance on this months statement
Customer Statement at 28th Feb 2008 (Balance forward) Date
| Transaction
| Debit
| Credit
| Total
| 1 Feb 2008
| Balance B/F
| 400.00
| | 400.00
| 1 Feb 2008
| Invoice 159
| 210.00
| | 610.00
| 25 Feb 2008
| Invoice 178
| 199.90
| | 809.90
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The advantage of a Balance Forward customer statement is that it is shorter. There are fewer transactions to print out as all the previous months transactions appear as one total in the Balance B/F amount.
The disadvantage is that when your customer looks at the statement you send them, the cannot see what makes up the opening amount and very old invoices get hidden in the opening balance.
The advantage of open item statements is that the customer sees all the invoices they have not paid and any unallocated credit notes or payments and they see how old the transactions are as the date is beside every transaction.
The disadvantage of open item customer statements is that they take longer to print and use more paper as they are longer.
Open item statements also reduce the number of excuses a customer has when it comes to paying the invoices. They can claim they did not know they were missing any invoices because on a balance forward account they can't check for missing invoices if they have lost or misplaced the previous months statements.
On an open item statement all unpaid invoices are listed so a customer cannot make any excuses for not having requested missing invoices.
A good time to use balance forward statements are for customers who have many transactions appearing on their statement. If using the open item statement method means you get pages and pages of print outs, it may be better to use a balance forward statement to reduce the number of pages.
With your accounts system, always setup accounts as open item accounts and then decide which type of customer statement to send them. You can choose open item for some and balance forward for others customers.
You decide, do you want the older unpaid transactions to appear on the customers statement (open item) or is sending your customer a statement with older unpaid items as one opening balance suitable for your business (balance forward). The decision should be based on what gets you paid faster, as against the cost of paper, ink and postage. If you have to send bigger statements does that suit your business and the type of customer you are dealing with.
Whatever method you choose, this does not take away from the fact you still need to keep on top of your customers when collecting money. Sending a customer a statement every month is good bookkeeping procedure, but only if you follow up and check that they are going to pay you and that they have received every invoice. Just because they have received a statement, does not mean they are going to pay. But a statement reduced the number of excuses they have. |
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Last Updated on Monday, 01 September 2008 16:38 |
