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Payment Plans - Invoice Options

Payment Plans - Invoice Options
Payment Plans - Invoice Options
Written by
Paul W Carlson, CPA
Published on
Dec 13, 2023

Paul W. Carlson, CPA (00:00):

Hi, this is Paul Carlson, CPA with Law Firm Velocity. We are looking at payment plans within QuickBooks Online and then also PracticePanther. So a lot of the practice management systems have released tools that you can use to manage payment plans. A client signs up for $3,000 worth of work and we're going to charge them a thousand dollars once a month for the next three months in order to collect that $3,000. So the two tricks that we need to happen within these payment plans is, one is we need a system that we can reliably ensure that the client is charged for these scheduled payments. And then, we also get feedback when payments are declined so we can pursue the missing payments. And then the other piece is, we need to use reports to manage the overall balances due from clients, that a lot of the payment plan systems you can set up the payment plan, but there's no transparency as to what do clients still owe us?


So we're going to use this example open invoice report from QuickBooks. So I'm running examples for three different matters that we're going to walk through today. So the first is for client A. And yes, I realize client A is not included on this screen and that's kind of the point. That client A is kind of using the default system that PracticePanther has set up for payment plans. And we'll jump over there in a second, show you why it's doing what it's doing. But under the default system, when you run an open invoice report, the client is invisible. We have no idea how much money they owe us and if they've been missing payments or not. So a couple workarounds is, first option is that we will create a one-time lump sum invoice for the total amount to the fee to be received from the client.


So in this case, we have a fee of $3.03 we expect from the client, and as we receive dollar payments every month, that this balance will just slowly decrease. The trouble with this is a client could make the first payment and miss the next two payments, and we really can't tell if the client is on schedule or not based on looking at this one line. So then the other option is to create a single invoice for every expected payment. So here we have invoice dated August 12th, we expect this payment to come in on August 13th, and we have this other invoice we created when the client engaged the firm. And we expect this payment to come in August 20th, that now as payments are received, we apply the payments to the invoices and they fall off the report.


With this process, we can run the open invoice report and we can look for things, look for items with due dates that are in the past, and we can kind of get a feel for how each client is paying. The downside to this is you have to manually create each of these invoices in Panther, and then there're going to have to be some sort of steps to apply payments received to these invoices. So client B, when we do one invoice for the total engagement, it's not so bad. Client C, if this payment plan was 18 payments, that someone is going to have to make 18 separate invoices and that's not going to be amusing. So let's jump over to Panther and see what's going on with these payment plans. So here's our client A payment plan.


What does is set up is, we are expecting to get a dollar a week until we receive $3. Behind the scenes, I'm actually running these as real payment plans against a credit card or a prepaid gift card. So we can do a second video to show what these transactions look like. So PracticePanther is going to go ahead and automatically charge these three payments. And what gets us into trouble is when we've selected this create invoice box. So what Panther's going to do is, when on August 13th when the next payment is due, Panther is going to make an invoice for $1 and then apply the payment to that invoice.


So within the same day we get an invoice for the one payment and the invoice goes away, or it's paid, so it falls off the accounts receivable report. The trouble with this is Panther is not making the subsequent two invoices, where the client was going to owe us another $2 in the future. It makes those invoices when those payments are actually received. So using this process means we're not going to see unpaid balances on the accounts receivable report. Let's click over into another payment plan. So this is client B. And so, this is where I manually created an invoice for $3.03 for this matter.


And so, down here we have create invoices is unchecked. So Panther's going to go ahead and charge a dollar one every week for the next three weeks until this is paid. And then those payments are going to flow in through Law Pay and we'll have to see how they post into Panther. But there's going to be some activity on our side to apply the payments received against the invoice. And same thing works with where we create for client C, where we have the separate invoices that we'll have to apply the individual payments to the individual invoices. And with that, that's kind of an overview of how we are seeing payment plans within Panther and other practice management systems, that our preference is to take the time and set up an individual invoice for every payment we expect. And that way we can use the open invoice report to monitor payment progress. Thanks.