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Finance charges are additional charges you add to what your customers owe when they don't pay on time. They are a small incentives to keep your customers from falling behind on payments. You have to tell QuickBooks about your finance charges, like the interest rate you charge and when you want finance charges to kick in. But you can also tell QuickBooks to skip finance charges on a customer's overdue balance, if you decide to give them a little more time. Before you can add finance charges to what your customers owe, you have to set up QuickBooks finance charge preferences.
On the Edit menu choose Preferences. Then in the Preferences window, click Finance Charge and then click the Company Preferences tab. You have to have administrator privileges to set up finance charge preferences. The preferences apply to everyone who works in the company file. In the Annual Interest Rate box, type the interest rate for the entire year. Many companies make the rate quite high, 15%, 18% or more.
QuickBooks prorates the charges based on the number of days that balance is overdue. If you charge a minimum finance charge regardless of the balance, to cover the effort and cost of sending out additional invoices, for example, type the minimum amount in the Minimum Finance Charge box. The Grace Period box is for the number of days you give a customer past a due date before you consider a payment late. In the Finance Charge Account dropdown list, choose the account you use to track finance charges.
You can create an income account specifically for our finance charges. QuickBooks leaves the Assess finance charge on overdue finance charges check box turned off. That's because it's illegal in some places to add finance charges to late finance charges. So be sure to check your local regulations before you turn this check box on. QuickBooks selects the Calculate charges from due date option. This is more common and starts charging finance charges only from the due date on, when a balance is actually late.
To be tougher on your customers, you can select invoice/billed date. Finance charges won't kick in until a balance is overdue. However, with this option QuickBooks calculates the finance charges from the invoice day, which could be many days earlier than the due day. To tell QuickBooks to add finance charge invoices to a print queue, turn on the Mark finance charge invoices "To be printed" check box. After you've set your finance charge preferences, click OK to close the dialog box.
To assess finance charges on the homepage click Finance Charges. You can also assess finance charges while you're preparing statements, by clicking Assess Finance Charges in the Create Statements window. In the Assessment Date box choose the day when you plan to send statements or finance charge invoices. For example if you generate statements for the end of the month choose the last day of the month. QuickBooks selects all the overdue balances as of that assessment date.
To skip finance charges for a customer, turn off the check mark cell for their balance. For example you might skip finance charges if a customer has a credit that you haven't yet applied to the balance. You can click Mark All or Unmark All to turn all overdue balances on or off. To add the finance charge invoices to a queue to print, turn on the Mark Invoices "To be printed" check box. Then when you're ready to create the finance charge invoices, click Assess Charges.
After you create finance charge invoices, you can send them to your customers on their own or bundled with other invoices or you can add them to a statement, as you learned in the chapter Invoicing.
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