Correct way to account for transaction fees
MohanVeme
Member Posts: 1
My apologies if this has been answered before. I searched, but could not find a discussion on this.
To manage payments made on a website through credit cards, I have added a payment gateway (account) as a Cash & Bank account. I now:
- Record a payment against an invoice as paid by credit card into the payment gateway account
- Pass an entry crediting the payment gateway account and debiting a payment gateway transaction fees account
- Pass a transfer entry for the remaining amount in the payment gateway (to the actual bank account)
Is this the right way to go about this? I ask because the payment gateway is not strictly our account—it's a separate company.
I think this has been addressed in this post. However, when I try to open that link, I get the following message:
"Oops! Looks like this content is meant for a different version of our accounting application. Head back to the Help Centre home page to search another topic or check out the related articles on the right."
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Hi @MohanVeme I think you'e on the right track!
Basically, you're going to create two transactions.
1. Transaction 1 - mark the invoice paid in full - after all, that's what your client paid! Just go ahead and mark it paid/create a transaction that pays it off in full. This would be recorded to an income account you've set up for this purpose. You can use "Sales" which comes pre-loaded in your Chart of Accounts, or set up your own.
2. Transaction 2 - if you haven't already, create an expense account under your Chart of Accounts called something like "Payment Fees." After you've marked the invoice as paid off, create an expense transaction from the same bank account where you recorded the invoice. The expense account will be the new Payment Fees account you just created, and the amount will be whatever fee amount was deducted by the payment processor/transfer service you used.
Now you're balanced! The invoice is paid off and you've correctly accounted for the fee you paid. The added benefit to this is that you get more accurate reporting - you can see what you actually sold AND how much you're paying in payments processing fees!
If you have a bank connection on and your transactions are importing, the final step here would be to actually delete the imported payment, because you've already accounted for everything correctly with the first two steps.
Let me know if this makes sense to you!
Hi Sophia, that is great advice thanks. But then how can I reconcile my bank account. By deleting the deposit the customer paid I my bank account will no longer be reconcilable?
Thanks, Izzy
Hey Izzy,
To add to what Sophia mentioned above, there is another way around this that you can use to account for merchant account fees and have your bank account reconcile completely.
The first step will be to head over to the Chart of Accounts and add a new holding account with the account type "Money in Transit."
Head back to the Transactions page and create an income transaction for the full amount of the invoice (before fees) and categorize it to "Payment for an Invoice in Wave" to mark the invoice as paid. Set the Account to your new Money in Transit account.
Next, add an expense transaction for the amount of the fees whose account is set to Money in Transit.
When the actual bank transaction is pulled in, set the category to "Transfer from Money in Transit."
We're building out ways to cut down on the amount of steps involved, but for the time being this workflow will help you account for merchant fees while making reconciliation as easy as possible!
I'm quite small, and mainly take checks for payments.
I am setup for credit card payments and all of the invoices I send out indicate that my customers can pay the invoice using a credit card.
An ideal situation would be an option to automatically pass credit card processing fees to customers if they decide to pay by credit card. I would like an optional section to explain payment options, and also a customizable note if credit card is clicked, explaining what the merchant fees are and that if they decide to pay by credit card, the fees of $X.XX will be added to cover merchant processing fees.
The only resolution for passing on credit card merchant fees to customers I've seen mentioned is if I already know the customer will be paying by credit card, then I can figure out the cost of it and add it to the invoice. The problem with that is, I don't know how they're going to be paying, and how they ultimately want to pay is really up to them and not something that I'm going to grill them on before sending out the invoice.
Ultimately, I can't afford to absorb the fees if they do want to pay by credit card and need this to be better automated.
Hi, @V_S.
Since passing on merchant fees to customers isn't allowed in every country, or even every region, Wave won't create a feature to make it automatic. You'll have to manually add a charge to your invoice in advance if they are to be paid by credit card.
Hi @Alexia.
I can understand this is an area that Wave doesn't want to be caught in the middle of either, especially since you are international. I have to admit that I didn't know the extent of things until looking into it a little more as well. Come to find out that passing credit card fees in my state is not allowed, but offering a discount for paying by cash or check is perfectly fine. It's all in the wording.
My invoices are 99% labor. I typically offer other discounts for my customers anyway, but if they pay with a credit card I take a hit in the end paying for the processing fees. Without knowing if they're paying by credit card or not, there's no good solution here for me and nothing provided by Wave to make it easier or automatic to help if a credit card payment is made to make any of the necessary changes on the invoicing.
Ultimately, I would like to have some sort of option I can use (even if you have to include a bunch of disclaimers to enable it and include it on the invoice, or even approve the wording ultimately used), which can make adjustments to the total amount depending on the payment method used.
That would make my life easier at least.
Hi, @V_S.
Thank you for your feedback!
I can offer a workaround. You could add a note as a memo to your invoices saying that clients who pay by cash or cheque are entitled to a discount, and indicate the discounted price there. When you receive payments for discounted invoices, you can go into that invoice and add a discount after the fact, so that your invoice is marked as paid in full.
Keep in mind that while you can make these types of modifications in Wave you do so at your discretion, it's advisable to ensure you're keeping in line with any laws or regulations wherever you might be. You may want to run this by someone who is an expert in your area.
@Alexia, I do Tech work, and my NOTES section already can have multiple pages of notes in it of work done, issues and errors. As a Tech, I'm also not a huge fan of manual workarounds and having to calculate every Invoice manually.
I prefer options and prefer automated, if for no other reason than consistency in calculations and reduction in the possibility of math errors. Less work is also a bonus, and is not showing a higher cost unless it's necessary to do so when credit card payment is clicked.
A note that says price reflects cash or check discount on the main page, and when credit card is clicked it includes the price difference of the fees automatically would be the ultimate goal in my opinion, at least the option for it.That is legal in my state, just not convenient or easy with Wave.
Thanks for your time. Whatever Wave decides, I'll definitely be looking at a way to add some wording to NOTES for this, but it will still be more work and confusion for all involved if it cant be an option to add it automatically.
Hi!
So, let's say there's no invoice involved--the payment came from Paypal, or another program of the like. I'm not allowed to do a total of the sales amount and then deduct the fees as an expense in the same split entry (like Quickbooks). So, should I also delete the imported entry and manually create two separate ones for the sales and then for the fees? This seems extra tedious for an already tedious task...
Hi, @erasedk.
If you're processing your payments through Wave or using the PayPal integration, it'll all be accounted for automatically. You could also handle it all through a journal entry instead. In the case of a sale (let's say for 100$, with a 5$ merchant fee), you would be looking at something like this:
Getting a single, straight answer to this would be helpful to me, too.*
The main thing I need to record are recurring invoice payments from my American clients (I'm in Europe).
My clients used to use PayPal, but that created a nightmare b/c PayPal adds a 2-2.5% spread on top of their currency conversions -- and won't provide any documentation of how much they deducted from each conversion.
Now my clients are using TransferWise, which saves me a LOT of lost revenue, but creates even more problems in accounting in Wave since you're set up for PayPal but not TW.
I need a SIMPLE way to record (a) received invoice payments, (b) transfer fees, (c) currency conversion fees, and (d) currency gains/losses.
Can someone please translate all the accountant-speak above into "pressed-for-time, simple-freelancer" English? (Think, "Ladies and gentlemen of the jury, I'm just a simple caveman...")
*I'm considering leaving Wave over the learning curve for non-accountants like me who just need to record a few things regularly. So simplifying this process so that I can record everything I need to without a ton of steps may change my mind.
Hi, @GenuineMarketing.
Unfortunately, there's no way to automate this entire process on Wave right now. We're working on making it easier for businesses like yours to handle multiple currencies, but not all the features we have planned on that front are ready just yet.
I'm more than happy to offer you a detailed, step-by-step process to handling these transactions if it would help, but handling both merchant fees and currency exchange will take a bit of work.
Hi Alexa, yes, a detailed, step-by-step process to handling these transactions is exactly what I need. How well I'm able to follow, implement, and use it will decide whether I stay with Wave. Thanks for your reply.
Alright, @GenuineMarketing, let's see what I can do to help!
I'll start by saying that the very easiest thing to do would be to handle those payments through Wave directly. The restriction here is that you would have to invoice your clients in Euros for it to work. The currency exchange wouldn't be accounted for, because it would be handled on your client's side. The amount of money deposited in your account would be in Euro, and merchant fees would be accounted for automatically. They would still be able to pay with a USD credit card. You can find more info on this here.
With that said, here's how you'd do it manually. For the purpose of this example, I'm assuming that you don't have a USD bank account. Let me know if you do, it makes the process much simpler.
First, there's some setup to do. This, you will only have to do once.
Now onto the actual accounting.
And you're done! I do recommend that you check out Payments by Wave. If your clients are comfortable being invoiced in Euros, it would save you a lot of time and energy.
I know you said you're working on it, but I just want to add my vote to please-create-this! What I'd love is a simple split transaction where I can say the invoice was paid, $85, of which $2.73 (or whatever) was deducted as a bank fee.
Oh yes I agree with IntensivesInstitute! Its so cumbersome to do all that and quiet frankly just beyond me with all the work I already have to do!
Just a simple split transaction please!!
Hi, @IntensivesInstitute.
I see that you are in a country where you can process payments directly through us, have you considered using our payment processing services? I'm asking because when you do process payments directly through us, all of that information is recorded automatically. It might save you some work!
@8Animals, I wish I could extend the same offer your way, but we don't offer payment processing for businesses in your country. With that said, your feedback is very appreciated! Thank you for sharing!
@alexia I'm already using payment processing that's tied in with my scheduling software over at Acuity. For my clients that's the most streamlined experience since they pay when they book, and for me it means I can make sure they pay before their sessions. I'd be very excited if there were any Acuity integration!
Right! @IntensivesInstitute, I remember you mentioning something about that in another discussion!
I read so many posts on here, they blend together a bit, sometimes
Thank you for the feedback!
Hello. I just tried something that seems to work, in this case for Square credit card transactions deposited to my bank account.
Customer was invoiced and charged $94. There were $2.59 in fees, making the final total deposited into the bank $91.41.
In Transactions, I split the deposited amount into two:
The final total adds up, and matches the bank statement.
Please let me know if there is any possible issue in doing this, or if there is a better solution.
Hi, @adividya.
The only issue is that calling that transaction a Refund for a Bank Service Charge isn't exactly accurate. This transaction should be linked to an expense account (Square fees), rather than be a negative income. Now, that won't really affect your numbers at the end of the day, but it might leave an accountant or an auditor scratching their head.
I wouldn't recommend handling your merchant fees this way, I really do think you are better off using the method I suggested earlier in this discussion (with the foreign exchange parts removed if you don't those), but your method will do the trick.
I am not sure if this is correct. But the Invoice was for $304.95, which is what the customer paid through Square. Square then deposited $296.56 into my checking account.
I created an deposit of $8.39 into undeposited funds (which is applied to the invoice), a withdrawal from undeposited funds to my checking account for $8.39 and then an expense for $8.39 for Square Processing fees.
So when the bank import came in it reflected $296.56. I changed that to $304.95 and split it into 2 category's. #1 $296.56 applied to the invoice and #2 $8.39 transferred from undeposited funds. That marked the invoice paid in full and I was able to email it to the customer.
Hi, @CardonDiscountAir,
No, that process won't work. It won't reconcile with your bank statement, will mark your invoice as overpaid for $8.39 and create a dangling transfer that isn't linked to any other transaction. Here's how you want to handle this instead :
That'll account for everything and ensure that your numbers on Wave match up with your bank statement and everything is taken into account.
Hi @Katie Silkina
I've been trying to solve this same problem, and the article you've linked is something I found a while ago, but was not very helpful.
After following the procedure outlined in that link, I'm receiving the following error:
It shows the amount as remaining to be categorised.
Please help. Since all transactions are through my website, every transaction has a payment gateway fee and these outstanding amounts are piling up.
So I reviewed this option and tested it out. I don't understand why Wave is making this uneccesarily complicated.
When we "split" the payment and use the drop down for "category 2"... why can't we just access our "business expenses" accounts? Then we would just select "credit card fees" from there and it would already be categorized properly for taxes and reports. I'm not sure I explained that correctly, but sufice to say that we already have a category under business expenses for "processing fees"... why can't we just access/apply that category directly?
@Arushi Since you already have the amount created as a deposit from your bank account, you will need to make sure that category 1 is the payment amount before the processing fees have been deducted (in your example, $3886.07 [the deposit] + $93.93 [the processing fee] = $3980 which should be category 1 -- the actual invoice payment). This will allow you to enter in the processing fee amount and split the transaction properly.
@gtewks If you have an expense account created under "Payment Processing Fee" you will be able to use these particular accounts to categorize the transaction -- I have attached two screenshots showing this as an example.
@JamieD thanks for your response.
I've just tried what you recommended, but it still isn't working. Please see the steps I followed:
1) Entered 3980 in category 1
2) Added an account under the processing fees called 'PayUmoney'
3) Selected this account for the processing fee of 93.93
After this, I still got the following alert and was unable to save the transaction.
What can be done about this?
@Arushi If you take a look at my screenshot (on the left hand side) and the transaction itself, you will see that the total actual deposit amount is $5,550.00. With that said, you will need to make sure that the first category of the transaction is higher than the actual deposit amount, since you are subtracting the merchant fees to equal the deposit amount.
@JamieD Thank you! I've finally got it