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Accounting for income from a payment service provider


#1

Introduction

This guide will help you to reconcile payments from the likes of PayPal, GoCardless, SagePay along with any credit card PDQ service provider and more broadly any payment provider that collects income on your behalf and pays you the net amount, minus their fee. It’s a very common scenario in accounting and it’s very useful to know how to account for these types of transactions.

The Basics

Obviously the key thing here is that the amounts received don’t exactly match your invoices, and more often than not they’re lumped together, and paid on a deferred basis. For example you may receive a lump sum payment into your bank account on Wednesday that relate to all sales income collected on Monday, less the processing fee. With other processors like PayPal you choose as and when you want to download funds to your current account. Irrespective of how and when you’re paid, the accounting methods are the same.

Every payment processor needs their own bank account in QuickFile

Firstly you need to ensure each payment processor has it’s own bank account. There is a special type of bank account in QuickFile referred to as a merchant account. You can create one of these accounts in the "Bank Management" area.

This bank account provides you with a ledger where you can handle all the gross payments received and processing fees without mucking up your current account or invoices. It’s really nothing more than a way to abstract all the activity of the payment processor to a dedicated account.

Now when PayPal, GoCardless, SagePay or whoever else transfers the funds to your Current Account you can literally enter this on the Merchant Account and tag it as a transfer to your Current Account. If you’ve download your bank statement then you would just tag the income as a bank transfer from the Merchant Account. Also when marking invoices as paid you simply pay the gross amount into the merchant account.

Step by Step example

  1. First create a new bank account (make sure the account type is a Merchant Account), let’s call it “GoCardless Merchant account”.
  2. Now let’s say we make 4 sales on the 5th August. We can simply go to these invoices and log the gross amounts as paid, nominating the GoCardless account as the receiving account.

    Our GoCardless Merchant Account now looks something like this for the 5th of August.
  3. Now on the 11th August GoCardless have paid the balance of those invoices (less their fee, we’ll call it £4, or £1 per transaction) into the current bank account.
    We therefore enter this as a debit on the GoCardless Merchant Account:

    …and tag it as a transfer to the Current Account:
  4. The balance on this account now is exactly equal to the processing fee charged by GoCardless for processing those 4 payments.
  5. We can now enter a new debit on the account that matches the GoCardless fee and in this case brings the merchant account back to zero.
  6. This debit should be tagged as a payment to a supplier. Setup a supplier in your account called something like “GoCardless Fees” (obviously substitute the name for the payment processor of your choice).
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  7. Your account is now back to zero, all items have been tagged, your invoices are reflecting the gross amounts and any processing fees have been accounted for and will be offset against your profits.

Lumping together sales and transaction fee totals

In the previous example we logged all 4 payments individually. This may well be time consuming and in some cases you may not want to issue an invoice directly from QuickFile. In such cases you can lump together all your payments on the merchant account and instead just enter the daily total, you can then tag this to a client called something like “Generic GoCardless Sales”.

You can do this daily, weekly, monthly, or at any interval that suits you. The same applies for the charges, rather than individually enter every single charge, just enter all the charges as one lump debit on the Merchant Account on a daily, weekly, or monthly basis.

For more information on bulk processing entries on merchant accounts see here.

FX Accounts

Although more commonly these accounting processes will be applied to electronic and terminal based payment processors, they are equally applicable to Foreign Exchange accounts. These sorts of services are generally used to simplify the collection of income in differing jurisdictions and currencies. Just create a bank account for the FX provider in GBP and any invoices can be paid gross in any currency to the FX merchant account. Transfers from the FX account to your current account can then be made minus the processing fees.

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