The advance payment or instant payment clearance offers that are available today are endless! They assist businesses greatly with cash flow and cash management. In the following scenario we will be discussing the use of Payability however this article can also apply if you use other services like World First or OFX for instance.
In this article we'll work through a scenario using Payability, but a similar situation can exist for other 3rd party payment or currency services. If you have specific questions about this or want further guidance please get in touch.
Let's work through an example where you have just started out with Payability so you are working your way up to complete advance payments. Let’s say for this example, Payability transfer your settlement funds on the closing day of the settlement, which is saving you having to wait the extra days for direct payment from Amazon.
As an example, this scenario is simply set up like this:
Settlement Period Nov 15 – Nov 29
Settlement Total $73,194.03
Payability deposit to your actual bank account Nov 29
(In our example below we use a Bank of America account)
Settlement total less Payability fee $71,730.15
Amazon deposit directly to Payability Dec 4
Settlement Total $73,194.03
This is purely a timeline of events for this example of one settlement only.
Here is a very basic example flow chart of events in your accounting system – the order in which the below items occur can be in any combination. This example doesn’t include the allocation of Payability Fees which we cover further below.
A detailed visual example outlining the transactional accounting treatment of the four settlements is shown below.
We have four settlement files in A2X ready to be sent to our accounting software and we have recently started using Payability. Payability have already paid us for each of these four settlements (less their fees) so we now need to make sure our accounting system reflects everything correctly.
To be able to accurately and efficiently record everything correctly in this instance, it is best to create a bank clearing account that can simply act as a ‘pass-through’ account. The bank clearing account can be set up as below but please note the account does have to be set up as a bank account, so we can map to it in A2X.
Once the account is created log in to your A2X account, go to Settings and then Connections. Then we need to refresh either the QuickBooks or Xero cache so that A2X can see the new account. Once we have refreshed the cache we can map to the new bank clearing account as shown below:
In our accounting software we have four deposits (for the four settlements) in our Bank of America account:
We can simply allocate these to the Payability Clearing Account as shown below:
We can now send the four settlements over to our accounting software from A2X (if they haven't already been automatically sent over). Once these are in the accounting system we can see that the deposit line of the QBO journal (invoice if using Xero) is being allocated to the Payability Clearing Account. Aside from the Payability Fees which we will cover below, this nets the transfer we did from the BOA account out.
We can then account for the fees that Payability charge by entering an expense transaction. As shown below:
You will note that the bank account listed at the very top of the expense entry is the Payability Clearing account - this will net out the balance remaining in the clearing account.
If we review our bank register in QBO or our Account Transactions in Xero we will see that the balance of the Payability Clearing account is now $0, our Bank of America account is showing the correct actual bank account balance, and all Sales, fees, debits, credits, deposits etc are all allocated correctly within your accounting system!