Save Time with Payroll Templates

 For those of you with seasonal businesses, such as landscapers, painters, remodelers and other contractors, you may find this time of year you are doing lots of hiring, depending on the size of your business. And anyone who’s been involved with that process knows that it can be very time consuming! For those of you who are responsible for setting the employee up in QuickBooks, the payroll template could help you save some time.
payroll template

The simplest way is to go into the Employee Center and click on Manage Employee information >Change New Employee Default Settings (shown on the right). But you can also access the Employee payroll template from the Company Payroll Preferences (below).
payroll templateOnce in the the template,

  • You can choose the most common payroll items, such as hourly wage, overtime, holiday pay, health insurance, etc.; it’s up to you whether or not you enter any default rates.payroll template
  • You can select the Payroll Schedule or Pay Frequency
  • You can opt to have time data to create paychecks (I recommend that for job costing)
  • You can even set up some of the tax defaults. Some may leave Federal alone but most of you could set up some state defaults (shown below)


payroll template





And while we’re on the topic of employees, those of you in versions older than 2015 are missing out on all the additional fields now available to help you through the hiring and employment process.

payroll template

 payroll template

So check out the payroll templates and knock some time off the employee setup process. Let us know if we can be of any assistance.

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Are Your Workers Contractors or Employees?

If you have workers in your business, you likely made a decision when you hired them as to whether they should be an employee or a contractor.  If all you hire is employees, then you have nothing to worry about.  But if you hire contractors, there may be some financial risk you may be taking that you may not know about.

Any person that runs a business as a sole proprietor that you pay money to for services rendered is considered a contractor.  One difference between an employee and a contractor is that an employee receives a W-2 and a contractor that you have paid more than $600 per year by check receives a 1099.  There are many other paperwork differences, and that’s the major one.

One of the biggest mistakes when a business owner hires a worker is thinking that they can decide to classify the worker as a contractor if they simply want to.  Unfortunately, it’s the IRS that decides on the classification, not the worker or the business owner.

What’s the Risk?

There is no risk from an IRS standpoint to classify a worker as an employee instead of a contractor.  There is significant financial risk if you incorrectly classify a worker as a contractor when they should be classified as an employee.  You may be liable for back employment taxes plus penalties and interest if the IRS re-classifies a worker from contractor to employee, and this can go back many years.

To calculate your risk, take roughly 20 percent of the payments you made to contractors.  This amount plus late fees and penalties can add up to what you could owe the IRS if you are mis-classifying workers and the IRS finds out.

IRS’s Employee vs. Contractor Rules

The IRS focuses on three factors to determine whether a worker should be a contractor or an employee: behavioral control, financial control, and type of relationship.

If you control both what and how a task is to be done, you should probably classify your worker as an employee.  If you can control only the results you want, you may be able to classify the worker as a contractor.

There are many other rules about this classification, so be sure to check with your tax accountant for more information.  Also, for those of you that love tax research, here’s a link that gives the full details of the IRS rules:

Having a successful business is all about taking calculated risks; however, you may not have known the risk you’ve been taking with contractors that you’ve employed.  For the IRS, misclassifying workers is a “red flag” area, meaning they are paying extra attention to it.  If you aren’t sure, then contact your accountant or an HR professional or even the IRS to help you decide.

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4 Ways to Get Your Estimates Entered Quickly In QuickBooks

For those who job or project cost, it all starts with the estimate.  When the estimate is simple, then it’s often easy to create in QuickBooks. But for many of you, you either have many of the same types of estimates (such as maintenance jobs) or have more involved estimates such as construction, landscape design/build projects, etc.   So here are 4 ways to get your estimates entered faster.

  1. Use Item Groups – This is a fast way to pull multiple items onto an estimate. While you might select only 1 item (group), you will see all the items in the group listed on your estimate. Examples –  items in a display, components of an outdoor fountain, labor and materials for a shed, what’s included in a maintenance contract…   Item Groups are also a way for you to have the detail in QuickBooks while showing your customer only the summary.  Here are a couple screen captures. For more details on creating Item Groups, you can read this article we wrote).Estimating
  2. Duplicate – If you need to create an estimate similar to another one you’ve done, you can duplicate the estimate, change the customer and any other pertinent information. This is also useful when you have a customer wanting to see multiple estimates for pricing or other reasons. Right-click on the document to get the pop-up menu below


  1. Memorize Estimate – Need to do this estimate (or type of estimate) frequently? Then memorize the entire estimate. This is especially helpful for construction jobs where numerous items/cost codes are used or for special types of project – such as office/home additions, backyard “kitchens”, patios, etc.   You can either click on Memorize on the ribbon bar or right-click to memorize.  Then to use this later, click on Lists>Memorized Transactions.   You might also want to memorize the estimate with $0 and/or 0 quantities so you will have to fill it in.  You don’t want to accidentally think it’s done when it’s not!Estimating
  2. Import – Many of you either do your estimating in a spreadsheet or 3rd party software, which often suggests some level of complexity to the Estimate.   Some 3rd party estimating/bidding or industry-specific software can integrate with QuickBooks so you can import the Estimate making this easy once it’s setup and a big time-saver.  Even if you use Excel, there are products out there you can use to import the estimate.  Usually the biggest issue is the items.  In Excel, many times people are inconsistent with how they reference their services, materials or subs, so importing could inflate your Items list.  However, if you can be consistent in your terminology, this can be a big timesaver.

You may find you use a combination of these options, but you will definitely save lots of time in entering your estimates.

If you want help with any of these ideas, let me know.  I would love to hear which method(s) you have found the most effective for you!

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Estimating in QuickBooks

Are your estimates in QuickBooks?  If you do job or project costing, then I believe some form of your estimate belongs in QuickBooks. Even if you just give your customer a fixed price.  All your other numbers are there – invoicing, job costs, payroll….  Chances are, you’re creating some form of those reports already, but you are probably pulling some numbers from QuickBooks, some from a stack of receipts for the project and then entering them either in a spreadsheet, on the back of a project folder and using a calculator. Doing that elsewhere can be very time consuming and double work.

If your estimate is in QuickBooks, with just a click or two, you can easily run the following reports:

Figure 1:  Estimated vs Actual


Figure 2: Cost to Complete (Premier & Enterprise)


Figure 3: Committed Costs (Enterprise)


Figure 4: WIP Summary (Enterprise)


If you enter estimated quantities (such as labor hours) and run payroll in QuickBooks, you can even get an Estimated vs Actual Hours report!

If your customer wants to make changes along the way, as so frequently happens, QuickBooks will let you do a change order and can keep track of the changes for you.  And, you can easily invoice off the estimate, order materials or even enter orders for work you will sub out, so once the estimate is in, often other tasks can be done with just a couple clicks.

If your estimating is fairly simple, then usually the regular estimate form in QuickBooks works. You can enter your anticipated costs for the various items, mark it up and arrive at a number you want to charge your customer.

I will admit that there are many times when the estimate form in QuickBooks can be inadequate so a spreadsheet or other estimating software often works better. But some form of the estimate still belongs in QuickBooks making it easier to review the job.  How much detail to have in QuickBooks depends on what you want to see in your reporting when you’re reviewing your job reports.

There are several ways to enter an estimate, including Memorized Estimates or importing using 3rd party software.

Let us know if you’d like help with getting your estimates in QuickBooks!

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Where Did All My Money Go? Understanding the Statement of Cash Flows

If you’re like most QuickBooks users, you rely on the Profit & Loss Standard report to monitor how your business is doing. However, you may have noticed that it rarely, if ever coincides with what’s in your bank account (hint: it’s not supposed to).  An overlooked, yet valuable report, is the Statement of Cash Flows. The Profit & Loss Standard (P&L), provides only partial insight into the health of your business – what you earned and spent. The Statement of Cash Flows explains your change in cash on hand.

Cash versus Accrual

Unlike some accounting packages, QuickBooks allows you to run most reports on either the cash or accrual basis. Cash-basis means that transactions don’t appear on your Profit & Loss statement until either your customer pays their invoice or you pay a vendor (or employee). So, if you enter a bill in QuickBooks to be paid later, the expense won’t immediately appear on a cash-basis P&L. Similarly, invoices that you send to customers won’t immediately appear on a cash-basis P&L. The expense appears when you write a check to the vendor, and the revenue appears when the customer pays their invoice. Consequently, cash-basis reports don’t necessarily report a company’s true financial performance. You could have a great-looking Profit & Loss Report, but a bunch of unpaid bills in QuickBooks.  For that reason, many accountants prefer that business owners use accrual-basis reports.

Cash flow, Profit, accrual, bank balance, QuickBooks reports, financials

Figure 1: Cash-basis reports only reflect paid transactions.

Accrual-basis reports recognize the effect of every transaction on your P&L immediately. Customer invoices appear on accrual- basis P&L reports as soon as you save the transaction, as do unpaid vendor bills. You can easily see the significance of these differences in Figures 1 and 2.

Cash flow, Profit, accrual, bank balance, QuickBooks reports, financials

Figure 2:Accrual-basis reports include all transactions–both paid and unpaid

Accrual-basis reports provide a much better picture of where the business stands, but can make it harder to understand your current cash position. However, a cash-basis P&L isn’t the answer for managing cash flow. Your business has many transactions that affect your Balance Sheet instead of the P&L, such as loan payments or owner distributions. (Remember, the Balance sheet tracks assets, liabilities, and equity.) The Statement of Cash Flows explains your change in actual cash on hand based on all your cash transactions – whether they affect the Balance Sheet or P & L, making it a great addition to Balance Sheet and P & L.  (Audited financial statements are required to show all 3 reports.)  So let’s take a closer look.

The Statement of Cash Flows

Suppose your cash balance at the beginning of your fiscal year was $100,000, and today it is $75,000. The net income figure on your P&L won’t give you the full details on why your cash balance decreased, but the Statement of Cash Flows will. To do so, choose Reports > Company & Financial > Statement of Cash Flows.

This report automatically defaults to This Fiscal Year-To-Date, but you can choose another time period if you wish.   If this is your first time, I recommend starting with 1 month, (no more than 1 quarter), until you are more comfortable with reading it.

Your Statement of Cash Flows report will include up to three major sections, as highlighted in Fig. 3. (Don’t worry if your report only includes one or two of these sections — sections appear only when you had relevant transactions during the report period.

  1. Operating Activities
  2. Investing Activities
  3. Financing Activities

Cash flow, Profit, accrual, bank balance, QuickBooks reports, financials

Figure 3:Statement of Cash Flows

 Operating Activities

The Operating Activities section of the Statement of Cash Flows recaps activities related to running your business. This section will always start with Net Income (comes from the bottom line of your accrual-based P & L), followed by an Adjustments section. The Adjustments add or deduct to your Net Income. For instance, Net income is $112,999 but the Net Cash from Operating Activities is $42,584. The Statement of Cash Flows identifies the $70,415 difference. Let’s take a look at a few of the items:

  • Accounts Receivable (-$71,759): During the report period we sent invoices to our customers, of which $71,759 remain unpaid.  Because we included these invoices as income in our P & L but have not actually received the payment, QuickBooks deducts them from the Net Income from the P & L.
  • Inventory Asset (-$17,354): Amounts that we spend on inventory don’t become part of Net Income on our P & L until we’ve sold the items. At that point QuickBooks posts the expense to Cost of Goods Sold, and reduces our inventory account accordingly.  But in this instance, we paid cash to purchase our inventory, so we deduct that amount is deducted on our Statement of Cash Flows.
  • Remember: The purpose of the Statement of Cash Flows is to reconcile Net Income with the actual change in cash account(s). Thus non-cash activities, such as unpaid customer invoices or prepaid expenses get subtracted or added from Net Income, so that you can get a clear picture of where cash went during the report period.
  • Accounts Payable ($13,537): We’ve entered bills into QuickBooks totaling $13,537 that we haven’t paid yet. While we deduct it on the accrual P & L, because we have not actually spent the money to pay those bills, we add that cash back in.
  • Federal Withholding: ($1,364): We’ve withheld income tax from employee paychecks in QuickBooks totaling $1,364 but we haven’t paid it yet, so we add that unpaid “deduction/liability” to our cash.

Want to know where QuickBooks got these numbers? Simply double-click the number in question to get a more detailed report.  You can even choose to total by week or month if that makes it easier for you to follow.

Cash flow, Profit, accrual, bank balance, QuickBooks reports, financials

Figure 4: A detailed report appears when you double-click on an amount within a QuickBooks report

Investing and Financing Activities.

As you look at the Statement of Cash Flows, you will most likely see one or two other sections:

  • Investing activities may include owner contributions as a source of cash, or in the case of the report in Figure 3, the purchase of $11,500 in furniture as a use of cash.
  • Financing activities will show borrowing on a line of credit or other loan as a source of cash, while loan repayments (excluding interest) will appear as uses of cash. It’s a nice way to see all your loan payments in one place. In the end, you’ll see exactly what caused your cash balance to increase or decrease during the report period.

Organizing the Statement of Cash Flows

QuickBooks makes an educated guess at what accounts in your Chart of Accounts should appear on the Statement of Cash Flows. Unless you are an accountant, I recommend letting your accountant review this report to see if you need to change what accounts appear and in which section on the report.  If there needs to be any change(s), simply click the Classify Cash button then enter a checkmark in the appropriate column for the account(s) in question.

Cash flow, Profit, accrual, bank balance, QuickBooks reports, financials

Figure 5: QuickBooks allows you to classify accounts as operating, financing, or investing activities

So next time you want to figure out why your bank balance and cash-based P & L don’t seem to agree, take a look at your Statement of Cash Flows.   I will admit, to those who don’t have accounting backgrounds, this may look a little confusing the first time or two (or three) that you look at it, but hopefully this article will help you understand it and you can get a better handle on your cash flow. And the more often you review it, the more comfortable you’ll be.  If you have questions, feel free to contact us or your accountant.


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Two Helpful Cash Flow Products

Get paid quickly and easily – A product that you may find very helpful in getting customer payments is Bill and Pay.  Features that I like include:

  • Customers can pay you online – with or without an account
  • With customer permission, you can get paid automatically even when the invoice amount varies
  • Customers can pay from a statement (especially useful if you send a statement out instead of multiple invoices)
  • You can have reminders & past due notices AUTOMATICALLY sent out to your customers – for some of you, that would be a huge timesaver
  • Integration with QuickBooks – I don’t even have to have QuickBooks open! It’s nice to see that there’s money to deposit J
  • You can even get a report showing the emails sent (I haven’t figured out how to do that in QuickBooks except for 1 at a time)

Click here to see a short demo.  If you’re interested in signing up, be sure to use my invitation code MUIRASSOC.

Need a loan – and quickly?  Try FundBox.  FundBox works off of your open invoices.  Let’s say you have an invoice for $5000 that hasn’t been paid yet.  You simply log into FundBox, click the invoice you want paid (in this case the $5000 invoice) and the $5000 goes into your bank account the next business day (that’s fast!!) – and NO loan application. Before you click submit, FundBox will tell you the maximum amount this loan will cost, so there are no hidden fees. Then over a period of 12 or 24 weeks (or faster if you want – and with NO prepayment penalty), FundBox will take the 1/12th (or 1/24th) of the $5000 back plus their interest.  It syncs with your QuickBooks and is simple to use.  You can set up FundBox any time – it’s free until you need to borrow money so you just pay the interest on what you borrow and for the length of time you borrow (can’t be longer than 24 weeks).   It’s great for those who sometimes get into cash flow crunches (as so many businesses do) – especially during your slower times of year. 93% of businesses who try FundBox use it again. If you’re interested in taking a closer look, click here.  It’s quick and easy to sign up, and then connect your QuickBooks.  You can see what it would look like, how much you could be advanced, what it would cost without actually committing

If you try either of these, I’d love to hear which one(s) and how it works out for you!

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5 More Ways to Get Paid Faster

Last time I discussed ways you can get paid faster that centered on invoicing and payments. Today I want to take a closer look at how to bring payments in sooner by using reports and other features in QuickBooks to help get paid faster.

  1. Monitor Your Accounts Receivable – There are several reports and tools in QuickBooks that can help you.
    • A/R reports – Under Reports>Customers & Receivables, there are several reports. My personal favorites are the A/R Aging Summary and the Open Invoices. What are yours?
    • Snapshot – The Company Snapshot can quickly alert you to those who are past due – they will show in red. (Don’t have that in your Snapshot? Click on Company>Company Snapshot or right-click on the Icon bar, then click Add and select Snapshots.)

Get paid faster

  • Income Tracker – The new Income Tracker can quickly let you see how many invoices are past due and who owes.

Get paid faster

  1. Customer Center – In the Customer center, you can quickly filter to see who owes, but if you want to see who’s almost due or who’s past due, you can customize the center to include those fields. Simply right-click on the list and select Customize Columns.  Then select the ones you want to see and move them in the desired order. You can choose when an invoice would be considered Almost Due in the Reminders section of the Company Preferences.

Get paid faster

FYI: You can choose what you consider Almost Due in the Reminders section of the Company Preferences

Get paid faster

  1. Send out reminders –
    • Before the invoice is due. If you have the Overdue column showing in your QuickBooks, you can quickly see the Almost Due (in yellow) or use your Collection Center to see who’s Almost Due and send reminders from there.  (If you don’t see the Collection Center, click on Edit>Preferences then Enable Collections Center found on the Company Preferences tab.)Get paid faster
    • Send out reminders just after the invoice is due. You can use the Income Tracker or the Collection Center to help you email reminders
    • AUTOMATIC reminders is a great feature in Bill and Pay– it will automatically send out those notices for you – both before and after the invoice is due, saving many of you LOTS of time! (Be sure to use MUIRASSOC if you want to test it out).
  2. Monitor collections. I prefer the Collection Center over the Income Tracker because it shows both Overdue as well as Almost Due, with a section for notes (especially helpful if you have to make more than one call). It also lists all the invoices (number, amount due, days overdue), phone number and has a link to email a notice.   But the Income Tracker is a useful tool – you can filter by overdue invoices, sort and send out.  If you “lost” your Collection Center, you can turn that back on in the Company Preferences under Sales and Customers.

Get paid faster

  1. Shift to more fast-paying customers. Use the Average Days to Pay to help you sort through who’s slow and who’s fast. (Reports>Customers & Receivables>Average Days to Pay).  You can export the report out to Excel and sort on the average days to pay – might be a real eye-opener!   Slowly (or maybe not so slowly!) drop your slow pay customers (or change their terms).  If you have prepayments and shorter terms (like due on receipt or net 10 or net 15), that should definitely improve the average days to pay. While it might be somewhat tough to change older customers, your new customers won’t know any different.

Get paid faster

Hopefully collections isn’t an issue for your company, but if it is, then these suggestions should help you get paid faster.  Would love to hear which tip(s) you liked best!

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5 Ways to Get Paid Faster Pt. 1

Who doesn’t want to have money coming in sooner – especially this time of year? While there are a few general practices that come with an industry, maybe it’s time to make a few changes.

  1. Invoice quickly. The sooner the invoice goes out the door, the sooner you get paid.  If you can automate your invoicing, you get them out the door even faster.  And emailing invoices will not only get them to your customers faster, but save the time (and money) to print, stuff and stamp envelopes, and getting them to the post office and then being delivered to your customer. Here’s an article that discusses 8 ways to quickly create your invoices.
  2. Track what needs to be invoiced. The last thing you want is for the work to be done but the invoice not going out!
    • If you were invoicing off the estimate, you can use the Estimates vs Progress invoice.
    • If you use the Sales order feature (which can also be used as a work order), you can use the Open Sales Orders to track. This feature is available in Premier & Enterprise
    • Review unbilled time and expenses
      • Reports
        • Unbilled costs (Reports>Jobs, Time & Mileage)
        • Unbilled time (Reports>Contractor)
      • Income Tracker Time & Expenses – shows a total dollar amount (that will get you hustling!)
      • Invoice Time & Expense feature (available in Premier & Enterprise) separates billable time from billable expenses and can be turned on in the Time & Expense company preferences
  1. Change your terms. If your terms are currently net 30, can you change them to net 15? (With the Add/Edit Multiple Lists, you can quickly change the terms for your existing customers.)  Can you make your terms Due On Receipt for your new customers?
  2. Make prepayments a part of your business. Look at all the recurring monthly and annual payments you currently pay in your business.  You may have opted for quarterly or annually so you could get a reduced rate, so it’s definitely more common now. You can do the same thing – offer a reduced rate if your customer prepays you for the contract, or the season, or …   you get the picture.  If you are starting a project, maybe ask for a deposit up front – that helps ensure a commitment at their end in addition to any signed agreement- even if it’s a one-day project. Doesn’t need to be for the full amount, but it does give you cash to offset payroll and other expenses you might have.  Here’s an article I wrote on how to set it up and track it so you don’t see this big sale in one month and then nothing for the other months for which you provide service.
  3. Make it easy to pay you– eliminate some of their excuses! There are several ways you can do this:
    • ACH – customers can pay you online or give you the check information by phone
    • Accept credit cards – statistically customers will spend more if they can use a credit card – wouldn’t that be great if they spent more with you?!
    • Automate their payments so you can skip collections. If you accept credit cards, you can charge their card each month (or quarter or whatever your payment frequency is).  If you use the Intuit merchant services, you can set this up in QuickBooks so it’s all in one place (which saves time and money).
      • If you haven’t tried the Intuit merchant services (Intuit Payments), here’s a link with more information. Keep in mind there’s great integration, NO contract and we can often get you rates lower than advertised, so contact our office

As you can see, most of these are simple to implement. So what are you waiting for?!  Start getting those invoices out the door faster.

I’d love to hear what changes you made and how it’s helped you and the business.

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8 Ways to Get Your Invoicing Done Quickly

Those of you providing snow services, I know how you scramble to get those invoices out the door so you can get the cash coming in!  And for those of you who will start getting really busy soon, it’s important not to have to spend any more time than necessary to get the invoicing out the door.

Getting invoices done quickly improves productivity, reducing overhead.  Even something as little as 15 minutes a day adds up over a year.  If you work 48 weeks a year (52 minus 2 weeks’ vacation and 10 holidays), 15 minutes a day is 60 hours a year.  Just think what you or an employee can do with that extra time. Additional billable work, another sales call, or clocking out sooner.  Financially, it’s $600/year for an employee making $10/hour, $1500 at $25/hour, $6000 for someone at $100/hour!

These tips below can save you much more than 15 minutes a day, depending on the complexity and volume of invoicing.

  1. Invoice off of Estimate or Sales Order – Rather than create an invoice from scratch, if an Estimate or Sales Order exists, click on Create Invoice, select some or all of the Items on the invoice – definitely much faster.invoicing
  1. Use Item Groups – This is a fast way to pull multiple items onto an invoice (or estimate or sales order). While you might select only 1 item (group), you might find your invoice now has 20 Items.  Examples –  items in a display, components of an outdoor fountain, labor and materials for a shed…  Below are a couple screen captures. For more details on creating Item Groups, you can read this article we wrote).  If you don’t want your customer to see the detail of the group, then be sure you uncheck the Print Items in Group.invoicing
  2. Duplicate – If you need to create an invoice similar to another one you’ve done, you can duplicate the invoice, change the customer and any other pertinent information. (You can also use this feature with estimates – very helpful for those who need to price 2 ways for whatever reason.)  Right-click on the document to get the pop-up menu belowinvoicing
  3. Memorize Invoice – Need to do this invoice (or type of invoice) frequently? Then memorize the entire invoice.; very helpful for landscapers and other service providers who invoice the same amount monthly. IF the services are the same but the quantities or rates are different, then memorize without the numbers that vary.  I once had a client used this feature because the detail in the item descriptions was lengthy, specific for the client but the same description every month.  Definitely saved her more than 15 minutes!
  1. Batch Invoice – This is a very fast way to create invoices for multiple customers who are being invoiced for the same product or service and the same An example would be homeowners’ monthly association fee or maybe an area where you plow snow.



  1. Invoice from Time & Materials – If you invoice for time and materials or expenses and have the information already in QuickBooks, you can pull that into your invoice. You get to choose how it appears.


  1. Batch Time & Expenses – Available in Premier or higher – different than Batch in #5, this lets you create time and material invoices quickly. Your billable time and expenses summary shows in a chart (great way to see it all in one place) and you can quickly invoice multiple customers who may all have very different times and expenses.


  1. Group of Memorized Invoices – For those of you who send out monthly invoices and a client is billed the same amount each month, but a different amount than another client, this is a powerful tool. A landscaper could quickly invoice all their lawn maintenance clients, or a bookkeeper with flat fee billing or a contractor providing project management….  You have to first create an invoice, memorize it and then save it in a group (you can have multiple groups).  When it’s time to invoice, simply go to your memorized transaction page and double-click on the group, enter the date and all the invoices in that group will be created!  Or even better yet, set the group to automate transaction entry so you don’t have to do anything!


You most likely will use a combination of these options, but you will definitely save lots of time and get your invoices out much faster.

So what will YOU do with the time that you save?  Would love to hear which method(s) you have found the most effective for you!

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Working With Customer Deposits (or Prepayments)

Do you take deposits up front from clients? Whether you’re in the construction industry, landscaping, trades or some other type of business, deposits up front help cash flow and enable you to pay employees and purchase materials for the job.  How they can be recorded in QuickBooks varies.

Many simply use Receive Payments to record the deposit.  Unfortunately, this understates your Accounts Receivable. So, if your true outstanding A/R is 75,000, and you enter a $10,000 deposit your A/R account would show $65,000.  With a short time-frame and few invoices, you can do the math in your head, but I don’t recommend this as an ongoing method, even it’s really simple.  From an accounting point of view, your balance sheet would be incorrect – definitely not something you could show a bank or investor.

Another method is to use the Progress Invoicing and invoice for the payment, so at least your receivables is correct. However, this shows income before you’ve done the work, so it’s still technically inaccurate.

For those of you who offer customers a discounted rate for paying for your work for the season up front, the complaint I hear from business owners is they see this huge number in the early season for income, which really does not reflect the work they’ve done. And in the remaining months of the season or project, your income is understated and can even show a loss for the business which really isn’t true.

I’ve also seen some record the deposit correctly, and then when they invoice, they enter the prepayment on the invoice.  In fact, I used to do to this. In many cases, the resulting amount due is $0, but that’s also what the invoice shows. So when you’re reviewing invoices, you don’t get to see the original amount and then the payment unless you actually open the invoice to see the detail. It may also confuse your customers if you send them a statement.  I found I wanted to see an actual invoice with an amount and then a payment applied separately.

The method I prefer is to invoice for the deposit, then invoice as you do the work, and use a credit memo to apply the deposit/prepayment to the invoice. That way the accounting is correct, you don’t overstate your income, and both you and your customer can easily follow the invoicing and payments.  (For those of you who file taxes on a cash basis, you will need to make an adjustment at year-end to show the money you actually received, which is not shown in this article.)

One-time Setup

  • Create an Other Current Liability Account for deposits (e.g. Unearned Income, Customer Deposits, Prepayments, Retainers)
    • List>Chart of Accounts>New>Other Current Liability
  • Create an Item for Prepayments/Deposits
  1. prepaymentClick on List > Item> New Item
  2. Type
    1. Service if upfront deposit or retainer for services
    2. Other Charge if up front deposit is for products
  3. Item Name – Prepayment or Upfront deposit… your choice
  4. Account is the Other Current Liability account created above

Handling Prepayment/Deposit

Record upfront deposit

  1. Create an Invoice for the job using the prepayment Item; you may want to use the memo at the bottom of the Invoice to make note of the deposit as well for reporting purposes
  2. Receive the payment against the invoice – this will show in your customer deposit “other liability” account on your balance sheet.

Applying Prepayment to an invoice

  1. Create an invoice for the work being done (this may be a progress invoice if you created an estimate or sales order)
  2. Create a Credit Memo (Customer>Create Credit Memo)
    1. Use your prepayment Item and enter the amount you are applying to the invoice
    2. When saving the credit memo, you’ll be asked if you would like to apply this to an invoice – say yes. If the customer has multiple invoices, be sure you select the correct invoice.
    3. On the memo line at the bottom of the credit memo, I like to make note of the invoice it’s paying – easier to follow in reports and statements.
    4. FYI, if you customize the footer of your invoice to show payment applied, if you choose to send this invoice to your customer, they will see the amount of their prepayment that is applied to the invoice.

Prepayment Reports

For a Summary Report of Customer deposits/prepayments:

  1. Click on Reports> Customers & Receivables > Customer Balance Summary
  2. Click Customize Report
    a.On the Display tab, click on Advanced Options and select Rows = Non-Zero

prepayment       b. On the Filters tab, click on Account, then select your Deposit/Prepayment liability account


  1. If you intend to use this report frequently, click on the Header/Footer tab and name your report.
  2. Run the report and then memorize

prepayment For a Detail Report of Customer deposits (this is what I use),

  1. Click on Reports> Customers & Receivables > Customer Balance Detail
  2. Click Customize Report
    1. On the Display tab,prepayment
      1. Deselect Account
      2. Click on Debit and Credit
    2. On the Filters tab, click on Account, then select your Deposit/Prepayment liability account
  3. If you intend to use this frequently, click on the Header/Footer tab and name your report.
  4. Run the report and then memorize




You will see the original deposit and then the drawdown of the deposit.


If prepayments are common for your business, then periodically you will want to reconcile the deposit/prepayment account to clear out finished projects so they don’t stay in your reports, but that’s for another day.

Contact our office if you have any questions or need assistance.

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