Are You Applying Finance Charges? Should You Be?
Assessing finance charges is a complicated process. But if you have a lot of late payments coming in, you may want to consider it.
There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.
Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.
You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly – or you’ll risk angering customers and creating problems with your accounts receivable.
Setting the Rules
Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.
Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.
Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences.
What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. Too high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?
You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’s Other Income.
The next decision, whether to Assess finance charges on overdue finance charges, needs consideration – and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.
When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?
Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.
Applying the Rules
QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations.
Open the Customers menu and select Assess Finance Charges to open this window:
Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.
Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations. Being even a day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balance from the original invoice, as well as the Finance Charge it has calculated.
- If you choose not to apply finances charges to a customer because he or she has provided a good reason for the late payment, be sure the box in the Assess column is unchecked.
- If you want to change the finance charge due for a valid reason, you can type over the amount in the last column. This would be a rare occurrence and should be exercised only after consulting with us.
Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.
When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.
We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.
Drug Testing for New Hires is Important for Your Company
If you have been considering putting a drug testing program into place, you’re not alone. Up to 60% of new hires are now required to pass a drug test before beginning a new job. This isn’t surprising as drug use costs employers $81 billion dollars annually. Pre-employment drug testing can save your company money and keep your employees safe.
Studies show that 9% of part-time workers and 7% of full-time employees use illegal drugs. While you may think that drug users are unemployed layabouts, actually over 70% of those with substance abuse issues hold a job of some kind, and over half of adults working know of an employee that has come to work while under the influence of drugs or alcohol.
It has been found that by drug testing new hires, you can improve your employee morale as well as productivity. By having a drug free work environment, you will reduce downtime, theft, accidents, and absenteeism and therefore increasing your bottom line. In addition, drug testing for new hires can help protect your company from law suits filed by an employee that is injured on the job by a coworker that is abusing drugs.
The two most common types of drug screening are the 5-panel and the 10-panel. The five-panel tests for cocaine, amphetamines, opiates, phencyclidine, and marijuana. The 10-panel test will also detect more prescription medications as well as additional recreational drugs.
Keep in mind that as an employer, you are also legally allowed to randomly drug test on a regular schedule even after a new employee has been hired. You also have the right to request the drug test to be taken in a short time span. A variety of specimens can be used for all of these drug tests including urine, hair, nails, blood, and saliva.
While some may find drug testing for new hires intrusive, for an employer, it is all about protection and productivity. Drug testing before someone becomes an employee can save you costly issues down the road.
5 IRS Audit Red Flags
You may have done nothing wrong. But the prospect of an IRS audit makes everyone sweat.
Many things probably go through your mind as you’re preparing a tax return or looking at one that’s been completed for you. Did I declare all of my income? Are all of the deductions I claimed legitimate? Do I have the required background documentation in case I get audited?
Even if everything is in order, you may still be selected for additional scrutiny by the IRS. Some IRS audits are entirely random. You may be chosen as the result of computer screening or based on a statistical formula. Other triggers include:
- Document matching (the information on your W-2s and/or 1099s doesn’t match what’s reported on the actual return), and,
- Related examinations (if you have business partners or investors, for example, who were selected to be audited, you may also be subject because of your relationship).
5 Triggers
There’s no way to ensure that you’ll never be audited by the IRS. But some tax-related scenarios may make it more likely that you’ll get that official letter in the mail, like:
Your income is high. This is a good thing, right? Yes. But the more you make, the greater the likelihood of an audit. This is clear when you look at the most recent data available, as reported in the Internal Revenue Service Data Book 2014. 0.86 percent of all returns filed were “examined” in 2014, to use the IRS language. 0.53 percent of taxpayers who claimed an Adjusted Gross Income (AGI) of between $50,000-75,000 were looked at. That percentage jumped to 1.75 if you made between $200,000 and $500,000. If you made a million but less than $5 million, that percentage increased to 6.21. And 10 million or more? 16.22 percent of those taxpayers were tapped for examinations.
You’re self-employed. Claiming a loss if you work for yourself can increase your chances of being audited. According to the IRS materials referenced above, only 0.93 percent of taxpayers who had AGIs of $1.00-25,000 had post-filing sessions with the agencies. But of those who had an AGI of zero—or less than zero—5.26 percent were audited. Why? The Schedule C. The IRS knows that some self-employed people either don’t report all of their income or exaggerate their deductions – or both. Some may also blur the distinction between a business and a hobby, which the IRS can choose to scrutinize.
You’ve claimed excessive deductions. Two areas where this sometimes occurs are charitable deductions and medical expenses. You must have pristine records to claim either. So if you have a year when you’ve been especially generous or especially unhealthy, take special care to assemble and store all of your documentation, just in case. There are other deductions that may raise an eyebrow at the IRS if their dollar amounts seem higher than they should. Do take any deductions that you’re entitled to, but know that the IRS might want to look at your return more closely.
You forgot to report some of your taxable income. If you’ve received forms from institutions reporting on the income they supplied to you, the IRS was also notified. Go through your paper mail more carefully than usual in January and February; some will probably say something like Important Tax Information Enclosed. Start a folder for the forms that come in and keep it in a safe place. If you’re using an accounting application, it will be easier to run reports and compare your data to the forms you’ve received. If you’re not, and you have multiple income streams, we’d be happy to help you explore all of the areas where you might have received money. (We can also look for deductions you might have missed and handle all of your tax preparation.)
You neglected to report (and pay) the penalty on early distributions from retirement accounts. There are situations where the IRS will grant an exception to a withdrawal from a 401(k) or IRA before age 59-1/2. If you don’t qualify for one, the 10 percent penalty is mandatory.
It’s much easier to do everything you can to avoid an audit than to have to go through the stress-inducing process. Let us know if you want our assistance when it’s time to start preparing.
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