The Average Days to Pay report is new in QuickBooks 2011 version (Pro, Premier and Enterprise) As the name implies, the Average Days to Pay Report shows you the average number of days that it took each customer to pay the invoices that you sent them.
To find this report, from the Report menu in QuickBooks Pro and Premier 2011 and Enterprise 11.0 -> choose Customers & Receivables -> Average Days to Pay.
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The report lists all paid invoices and statement charges; grouped together by customer and job. For each invoice (transaction) the report shows the number of days that it took the customers to pay the invoice. QuickBooks will calculate the number of days to pay as the difference between the date of the invoice or statement charge and the date that you received the payment.
By default, the report displays the transaction type, the due date (based on the terms you chose for the transactions), the transaction number, any memo that you entered at the bottom of the invoice, the account (usually Accounts Receivable), the class that you assigned to the transaction, the Amount of the original invoice, the Date of the original transaction, Paid Date, and then the Avg Days to Pay.
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Personally, I would modify this report to make it more meaningful.
To do this, I would begin by clicking on the Modify Report button and from the Display tab; in the Columns scroll box, I would uncheck:
- Memo (unless I kept penitent notes in the memo field of my transactions)
- Account (unless I had multiple Accounts Receivable accounts), and
- Class (unless having class information is pertinent)
In addition to leaving the Type, Due Date, Num(ber), Amount, Date, Paid Date, and Avg Days to Pay columns, let’s also check Terms.
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To make this report even more meaningful, I would move the Date column between the Type and Terms columns. This will show the information in a more logical and meaningful way; by Type, Original transaction Date, Terms, Due Date based on payment terms, the transaction Number, Amount, Paid Date, and then Average Days to Pay.
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As the last step, I would memorize the report (so I wouldn’t have to make these same modifications each time I ran the report). To perform this final step, click on the Memorize button (located at the top of the report), which launches the Memorize Report window. I wouldn’t change the report Name, but I would choose to Save in Memorized Report Group for Customers.
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From this point forward, whenever I wanted to generate this report I would do so by going to the Reports menu -> choosing Memorized Reports -> Customers -> Average Days to Pay.
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I can see that the Average Days to Pay Report would be a useful tool in helping all businesses, not just contractors, determine their projected cash flow.
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Retention or retainage is usually a specific percentage, for example 10%, of the total contract that is held back by the project owner in reserve to protect the owners interest. Retention is not held in a lump sum, but rather held at the stated percentage for the amount requested on each application for payment. Your contract should set the terms, including the percentage and when the hold-back will be paid.
Contractors using QuickBooks often run into difficulties when handling retainage/retention; simply because the software doesn’t have a means to automatically deal with it.
Because QuickBooks doesn’t have a built-in retention function, like many of the more expensive construction specific software program, QuickBooks users must initiate work-arounds and make QuickBooks track retainage that is held on each progress invoice.
Over the years, I’ve seen several work arounds that various contractors, their bookkeepers, and even their accountants have implemented, such as:
- Simply leaving the retention amount of each invoice sitting in their open A/R.
- Billing for just the amounts on each line item that they will be paid for.
- Creating a Customer called Retentions Receivable and then making some fancy Journal Entries each billing period to move the retainage from the originating customer to the Retentions Receivable customer.
- Using a QuickBooks Discount Item to deduct retainage on individual invoices and mapping it to the Chart of Accounts as either an Income Account or Expense Account.
- Creating an Other Current Asset Account, called Retainage (Retention) Receivable and through the use of “Items” automatically move the money to this account on each invoice that is generated.
- Creating a Sub-Account of Accounts Receivable called Retainage (Retention) Receivable and then through the use of Items and additional invoices move the retainage amounts into this newly created Accounts Receivable sub-account.
Each of these methods has their own drawbacks, however, the first three (4) methods described cause the most problems with the contractors accounting records and are methods that I highly recommend that you avoid.
The easiest method that I know of, is tracking Retainage as an Other Current Asset Account on your Chart of Accounts – Balance Sheet section; however, MUST get with your accountant and have him teach you to do a journal entry that will remove the amount from Income.
To implement this system:
- Add an Other Current Asset account to your Chart of Accounts called Retainage or Retention Receivable.
- Create an Other Charge OR Service item in your Item List called “Less Retainage”, map this to the account you created in Step 1, and in the Rate box enter -10.0%.
- Create another Other Charge or Service item in your Item List called “Retainage Due”, again mapping it to the account you created in Step 1.
- Make sure that you have a Subtotal item in your Item List.
- Create your Invoice or Progress Invoice billing for the full amount before any retainage is withheld. On the first blank line at the bottom of the Invoice, select your Subtotal item and then your Less Retainage item – the balance on the invoice that goes to A/R is now the amount after retainage, and the retainage dollars are moved to the Other Current Asset Account.
- You can generate Reports on the Retainage Receivable account showing who owes you what by going to your Chart of Accounts, click on the account created in Step 1 to highlight it, click the Report button at the bottom of the window and choosing QuickReport .
- When you are ready to bill for retainage, create a “normal or regular” invoice using the Retainage Due item and entering the appropriate dollar amount from the report.
As I stated earlier in this article, this is the easiest method – because it’s just adding two additional items to the bottom of your invoice and all the math and work is done for you; however, the amount of retainage that you deducted shows up in your Profit & Loss Report in your Income Account (even if you run the reports on a Cash Basis) which does require that a Journal Entry be created to remove this from your Income. You should consult your accountant for the proper entry.
