A QuickBooks question and tip about handling back charges or other changes after a job is billed at 100%.
First…I love your blog…totally!
My question: I’ve got a client who uses estimates and prepares their progress billings from the estimates. They have had a couple of jobs in which the job is 100% billed out (but not yet 100% collected – there is outstanding A/R) and then the owner disputes something and they have to do a backcharge, therefore, reducing the total amount of the project. We change the estimate with a change order to reflect the decrease in the overall contract amount. We would like to “connect” that change to the invoicing/progress billing cycle on the job but since the job is all billed out, the only “invoice” that could be issued and associated with the estimate is a negative invoice which QB won’t do. So then, to correct the A/R we issue a credit memo, but that won’t tie into the estimate. So, in the end, the estimate is a little wacked out from the billings information so when the client is looking at an open WIP report, this thing shows up as a weird animal. Do you have a suggested best practice for taking care of this kind of situation? Thanks!!! Dana
Hi Dana
Back charges after a job is billed at 100% or even a negative change order during the project makes for a lot of extra work in order to make the “numbers” add up in reports ….. it would be really nice if they didn’t happen at all!
If you are going to the Estimate and just changing a dollar amount – let’s say that you have a line item on your Estimate for Windows with a value of $2,000.00 and there is a charge back of $500.00 – if you just go and change the “windows” item amount from $2,000.00 to $1,500.00 and let QuickBooks create it’s version of a “Change Order” it really doesn’t leave an effective trail.
Now, instead, if you go to the Estimate and go to the very bottom of it to the first available blank line and pull in the SAME item you used for “Windows” in the original part of the estimate, change the description to indicate that this was a back charge on a specific date for whatever reason against the windows and make the dollar amount a negative $500.00; you’ll have a much better trail of what happened. You could even create a new item, calling it Charge Back (or even Change Order) with no dollar amount and put that between the end of the original items and before the reduction. This will clearly show the reduction to the contract and what caused it.
Ok, so that takes care of our Estimate trail.
Next let’s talk about your last Progress Invoice and any remaining open balance on the contract.
If the last Progress Invoice that you have on A/R for this job is MORE than the amount being charged back (the $500.00 in our example) – I think what I would do is to void that original invoice (making a note in the memo field as to why) and recreate it from the Estimate – billing for all the original amounts and the 2 new line items that you added. This time I would use the memo field to indicate that this was a revised billing to reflect the back charge.
This should eliminate the need for Credit Memo’s, which you are correct do not tie back to an Estimate, and your reports should now be more accurate.
Make a backup of your clients data file and play around with this method and run your reports and see if things don’t make more sense.
I hope you’ve found this tip for handling back charges in QuickBooks after a job has been billed at 100% to be helpful. If so please take a moment to leave a comment or to share it with others on your favorite social media platform – using the buttons below.
Hi Wendy
I apologize for the delay, I was out of town last week for a QuickBooks conference.
On one hand I agree with you – that QuickBooks should be able to handle this situation without it feeling like a hack job. On the other hand, I also understand why it doesn’t – not everyone needs or wants this sort of functionality and all in all QuickBooks is still just a generic program suitable for any type of business.
You don’t indicate what year version of QuickBooks you are using – 2013 and 2014 have a much better Credit memo feature – where you can actually choose what Item you are giving credit for as well as a dollar amount.
I also think that perhaps you might be better off using the QB Estimate feature to enter the “budget” for your project. You would get much better reporting and things might not feel like such a chore.
This may be a little different from above. We don’t use estimates. This is for a residential related company. We send invoices to customer. Customer pays invoices. Occasionally customer sends a back charge for something related. Sometimes that house has been paid in full, sometimes there is still a balance due. Either way, it creates a huge headache and we have not come up with a way to enter this yet that isn’t just a patch job. It really seems this is a common occurrence and something QB should be able to handle. Any suggestions. Thanks.
Hi Jeannie
If the invoice has been paid and the payment already reconciled in the bank account you’d want to be VERY CAREFUL and make a backup before doing what I suggest or you could have a bigger mess on your hands than when you started (disclaimer – that’s me be 100% totally honest!).
Check your open invoice report very carefully to see if there are any other “negative amounts (payments)” displayed. And make sure that you use the original dates for progress invoices and deposits.
Hope this helps.
We have run into the same issue with credit memos not tying into the estimate/progress invoicing. You would think QB’s would track it if the credit memo is created from the original progress invoice which is tied to the estimate, but it doesn’t. It would be an almost perfect system if it did! I like the idea of voiding the invoice…but what happens if the invoice has already been paid and the payment has already been reconciled in the bank statement?
Thanks for any insight you can provide!
Larry
Thank you for your kind words – I’m glad that you found this post helpful.
Excellent post! Thanks again! You’re blog is the only one that consistently provides spot on answers. It’s not everyday you find someone that understands accounting, business and Quickbooks. And there is a lot of misinformation out there from people that do not have a clear understanding of all three. But you do and I appreciate the effort you put into this blog.