Unique Contractor Bookkeeping Problems Regarding Receivables

Challenges Of Keeping Accounts Receivable Simple And Up To Date

Creating an invoice for the entire project seems like it is the simple way to track payments and have the current balance. The harsh reality is that if all of the work is NOT done Accounts receivable is reflecting a balance due that is NOT REAL.

Businessman being depressed by accounting in his office

With Change Orders to the projects (up or down), the original contract is usually not the end number. Accounts receivable is a reflection of money you expect to collect NOW.

More extensive projects (especially new construction) the billing and payment schedule typically is a bill on the 25th of the month and hope to be paid on or before the 10th of the following month. Anything not paid is going to age on the Accounts Receivable (A/R) Aging Summary.

Job Deposits, Retention, Notes Receivable (long-term payment plans) are not part of Accounts Receivable. Credits from suppliers, repayment of Loans to Owners, Employees, Friends, and Family do not belong in Accounts Receivable. Follow up as necessary for payment but Accounts Receivable is for expected Income from Customers and clients for work performed.

Accounts Receivable (A/R) Aging Summary

Is Like The Tachometer On Your Vehicle

Do you have numbers in Current, 1-30, 31-60, 61-90, >90? What is your Total? Reminder you have already paid your Labor, Material, Other Costs, Subcontractor, Taxes on all this money. Every dollar sitting there is a big deal. Your contractor (as a sub) may be pay as paid and you might have that same agreement with your subcontractors, but your supplier has been paid or will expect to be NOW!

Reminder – You should be collecting Job Deposits

Do Not Borrow Money On Your Credit Card At 18% And Lend It At 0%

You Are Not A Bank - Never use your high interest credit cards and supplier accounts to provide financing to your customers in the form of providing a lot of labor, material, subcontractors and rental equipment hoping to get paid later on down the road.

McDonald's Restaurants Earns - Massive profits and part of the reason is cash flow. I love their business model; customers order first, pay second and get food last. No invoicing, no waiting for the check to arrive and hoping it will clear the bank. They say just Show Me The Money!

You Can Offer Financing - Accept credit cards! Get setup at a bank and/or credit union that will offer to loan your construction client's money for small projects under $25,000. They sign paperwork with the lender; you do the work and get paid.

Accepting Credit And Debit Cards - is like having an "Electronic Armored Car" on standby 24 hours a day, seven days a week ready to take your money to your bank automatically. If your QuickBooks is setup properly an invoice can be emailed to your customer or clients and when they open it there is an option for them to pay by credit card immediately.

For Example - You finished a construction project at 01:00PM, went to your office at 05:00PM, opened QuickBooks, put together an invoice and emailed it to your customer at 06:00PM. They arrive at home at 07:00PM. After dinner they check their email at 09:00PM. They open your email review your invoice and pay the bill at 10:00PM.

Don't Ever Finance - Your customer or client's project by providing substantial amounts of labor, material, subcontractors and rental equipment hoping to get paid later down the road.

Having Owned And Operated - Several construction businesses I know how important cash flow is to the success or failure of any business and especially construction companies like yours!

We Have Clients - Who took a while to understand why I was hard on them and kept saying "Get The Money". Once they realized what real peace of mind was, paying all the bills on time and having money left over for vacations, toys and to support their favorite charities it became crystal clear.

Get Enough Job Deposits - And progress payments so that you are always using "Other People's Money" (O.P.M.) to pay for the labor, material, subcontractors, rental equipment and overhead of their construction projects.

When you invoice your customer for the entire amount of the job it makes it very hard to keep track of the unbilled portion because as change orders occur (up or down) the amount due to changes. Then the contractor is trying to figure out what the current billing is due outside of QuickBooks.

Creating a double billing will then run the risk of overstating income, being liable for and paying taxes on a number that is not real. Cleaning up the QuickBooks file, we find contractors will have entered into QuickBooks an Estimate as an Invoice based on their best hope that the Yes from their customer is real.

Unable paid balances in Accounts Receivable Aging Summary can be as simple as sales tax adjustment, payment received and no invoice was created. Slight overpayment where client rounded up payment for convenience (tip). Other times payment was posted directly to the checking account, paid into Paypal (then a different amount transferred to checking) or money received was less due to merchant services fees.

All over the course of time will distort the numbers. You the Contractor looking at the Balance Sheet and say "I can buy [fill in the blank] because I have this much in Accounts Receivable". The banker looks at the Accounts Receivable and wonders why you cannot or won’t collect the balance due. Many tax accountants suggest any amounts over 90 days should be written off. Lots of bad debts are not helpful in getting loans from the bank. Again negative numbers and low balances are invoicing issues. Large balances are sometimes the result of a number billed ahead of work performed or a result of a poor contract or collection policy.

Taking credit cards is cheap in comparison to penalties and late fees, especially to State and Federal Government. The question you could ask yourself is paying 2% discount less than paying 18% or more in fines and penalties?

Conclusion:

Helping Contractors around the world is one of the reasons we added the FastEasyAccountingStore.com
Follow our blogs, listen to Contractor Success M.A.P. Podcast. We Appreciate Our Visitors, Listeners, and Subscribers. – Thank You!!

Please feel free to download all the Free Forms and Resources that you find useful for your business.

We are here to Help “A Little or A Lot” depending on your needs.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/ 206-361-3950 or sharie@fasteasyaccounting.com

Download the Contractors APP today from the App Store or Android Store

Access Code: FEAHEROS

Click here to download the App on Android:

Click here to download the App on iOS:

Simply scan the QR code or search for ‘MyAccountants’ in the App Store and enter the Access code: FEAHEROS to utilize the powerful App features and capabilities, and benefit from having our Construction Accounting App at your fingertips, 24/7."

PS: Even if you are not a Construction Contractor you will find a plenty of benefits in the app so we invite you to download it too! It's Free so why not?

When You Become A Client - Then we can tap into our resources of knowledge and strategy banks. We use the reports hidden in your QuickBooks in order to diagnose and understand your construction business and develop plans and help you implement a path to success for you and you alone because every contractor has unique Strengths, Weaknesses, Opportunities and Threats (S.W.O.T. Analysis) that when understood can lead to a Strategic Roadmap which cannot help but make a lot of money.

We Remove Contractor's Unique Paperwork Frustrations

For Construction Company Owners who do not need the full power of a QuickBooks for contractors and want 24/7 online access we offer Xero Accounting Online, and we have a custom setup for construction companies. Click Here For More.

This Is One More Example of how Fast Easy Accounting is helping construction company owners all across the USA including Alaska and Hawaii put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that, and a lot more valuable to people like you so stop missing out! Call Sharie 206-361-3950 or sharie@fasteasyaccounting.com and schedule your no charge one-hour consultation.

Profitable Contractors and Construction Company owners have known about the value of outsourced bookkeeping services and contractor coaching services like ours for a long time, and now you know about it too!

Thank You For Reading This Far, And I Hope You Understand we really do care about you and all contractors regardless of whether or not you ever hire our services.

We Scan Your Receipts, And Invoices link the appropriate transactions to QuickBooks or Xero Accounting Online depending on the construction accounting service you are using and provide ongoing Cloud Based Contractors Bookkeeping Services by accountants who understand construction.

Our Contractor Bookkeeping Services System Is A System

Thinking About Outsourcing Your Contractors Bookkeeping Services To Save Time And Money?

Click On The Button Below To Download A Free Guide

Business Process Management (BPM) For Contractors

Need Help Now?

We Are Also Xero Accounting Experts Specializing In Construction Bookkeeping Services

PS: For The Do-It-Yourself Construction Bookkeeper Our Store Has Chock-Full Of QuickBooks Setup Templates, QuickBooks Chart of Accounts And More.

Most Contractors Setup QuickBooks Desktop Version In One Of Three Ways:

#1 EZ Step Interview inside QuickBooks Setup
#2 Asked Their Tax Accountant To Setup QuickBooks
#3 They Attended A How To Setup QuickBooks Class Or Seminar