Match Deposits with Merchant Settlements

As a small business owner, if you accept credit or debit cards payments then you probably understand the convenience of simply charging your customer’s credit cards on file rather than wait on a check payment to settle accounts receivables.

However, this convenience is not free of charge either, in that the credit card processor that provides this service to you will charge a fee, typically a flat rate and/or a percentage of each transaction processed.

These fees can be charged to you one of two ways:

1. By deducting the fees PRIOR to your funds settling into your bank account.
   • In other words you won’t receive a dime until the merchant processor has already deducted their fees from your pending deposit. This action occurs while the merchant processor is holding your funds, typically about 1 or 2 business days.
2. The 2^nd way is the merchant processor just automatically debits all fees DIRECTLY from your bank account.
   • In other words, the fees are not deducted from the pending deposit settlement, but rather are deducted, via a totally separate transaction, directly from your bank account.

Bookkeeping to account for the 2^nd way mentioned above is rather easy because each fee is just a separate transaction by itself to book.

But, the bookkeeping for the 1^st method mentioned above can be challenging for this reason:

• The deposit settlements (from your merchant processor) will occur in batches, minus the fees of course. So, as the bookkeeper, you have to find a way to match these deposit settlements to your customer payments (again minus the fees).

If you receive most of your customer payments from credit or debit cards, I recommend maintaining your accounts receivables and deposits at least on a weekly basis in your bookkeeping system. Anything longer than a monthly maintenance of your bookkeeping here can turn into a challenging and confusing situation, simply because you will have to find out who paid you and then go thru the long list of deposits on your bank statement and try to match each deposit to all of your customer payments (minus the merchant processing fees of course).

The best way to receive credit or debit card customer payments in your bookkeeping system is:

1. Receive the full amount due to settle the customer’s receivable in full.
   1. Very Important: Be sure to choose the Undeposited Funds account (and not your bank account) to deposit the funds to.
2. Now (within the deposit screen) deduct the merchant fees within your deposit transaction.
   1. Here (within the deposit screen) you will now choose your bank account as the place where the deposit actually settled.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.