As well as looking after my regular, private clients, I have recently become an approved supplier/contractor for a well-known estate agency company and will be doing gardening work at rental properties. As the company is effectively acting as an agent, understandably they will want their commission (which is set at 20%). I am looking for guidance on how to handle these sales in my books. If I were to invoice a regular client of mine for a total of £150 then that’s fine, I would be paid that. If I did a piece of work on behalf of estate agency and my business is due the same amount (i.e. £150) I would need to raise an invoice for £187.50 - correct? The estate agency will pay me directly, on behalf of the landlord. In this example, £37.50 goes to the estate agency and £150 to my business. Where I am not clear is that the invoiced amount will be different to what I physically receive, i.e. £187.50 versus £150. It’s how I account for the difference (the commission)…??
I’ve found this previous thread on the forum that sounds as though it could be useful to you: Commission fee tagging
If it’s not quite right, or if you have any further questions, please don’t hesitate to let me know.
Your turnover is the amount you invoice for, irrespective of what you are actually paid.
Commission, will be an expense.
Well if you wanted to receive £150 and add 20% then your invoice would be £180, not £187.50.
So if you invoice for £180 then that is the amount your invoice should show, you would then need to raise a supplier purchase for £30.
When it comes to reconciling your accounts. You will need to create a holding bank account.
When you receive payment of £150 in your bank account. you will need to create a money in transaction in your holding account for £180, tag that against your invoice.
You then create a money out transaction for £30 and tag that to your supplier invoice.
Your then left with a balance of £150 which you tag as a bank transfer and match it up with your usual bank account transaction when they pay you.
Or if you are taking a hit on your income by their commission amount then your invoice will show £150. Supplier invoice will show £25. but the above process will be the same regardless.
Yes, if the commission is 20% (1/5) of the invoice total and you keep 80% net (4/5) then for a given net you need to multiply that value by 5/4 to get the total you want to invoice. £150 x 5/4 = £187.50
And add VAT on top of that if you’re VAT registered.
Thank you, Ian. Glad you agree with my maths! The accountant(!) thought otherwise…
Do you agree with the handling in the books that Mr Courtier suggests? I’m not so sure. I am going to speak to the agency and establish whether they pay me net (i.e. the £150) or ‘gross’, i.e. the £187.50 - based on how they work it with other contractors. I will then hopefully be in a better position.
Rather than insult me, a thank you for my explanation of how you record the payments might have been nice.
clearly I miss read your question and thought you wanted to add 20% to the net total £150 as opposed to taking a 20% hit on your gross total.
The difference being £30 and £37.50.
You’re welcome BTW.
I may be taking an overly simplistic view of this but I would handle this as follows:
Your invoice is to the estate agent and not the landlord so just invoice the estate agent your normal fee. They will then invoice the landlord the higher value to include their profit add in.
I don’t see any need for you to account for the estate agents profit in your invoicing. Just whatever they will pay you.
A chap at the estate agency advises that I should issue a ‘grossed up’ invoice. i.e. if my fee comes to £100, then invoice amount will be for £125 i.e. I divide my ‘normal’ amounts by 0.8
The estate agency will pay me the £100 so I have to account for the £25 (which is the estate agent’s fee/commission). So book entries: when I raise the invoice for £125, it’s Cr sales and Dr debtors (the agency). When agency pays me the £100, it’s Cr debtors, Dr bank. This leaves the £25 difference as a b/fwd debit balance on the debtor. How do I deal with that? I’m guessing it’s something to do with nominal 6100 (sales commissions)…
Afternoon Paul, firstly apologies if I offended you in my earlier thread…no malice intended!
Having gone slightly(!) round the houses a bit to get to the bottom of this, I am coming back to your initial explanation and would certainly appreciate your looking over my ‘worked example’ - which hopefully I have got right.
Using my hypothetical figures, I will assume I raise an invoice for £125, where I am due £100 of this (i.e. 80%) and the agency gets the other 20% (i.e. £25).
I raise the invoice; Credit sales, debit debtors (the agency) for £125
The agency pay the across £100. Create a money IN transaction for £125 in the holding bank. Also create a money OUT transaction for £25 in the holding bank.
Would need to set the agency up as a new supplier and raise a PO for £25, coding it to nominal 6100 (sales commissions). Tag this to the credit entry of £25 in the holding bank
Tag the £100 balance in the holding bank as a bank transfer to debit current account to show payment in from agency.
I think that’s all the entries! - does it all sound correct??
Thank you, Robin
Would be most grateful if anyone (Support team??) could comment on my latest post in terms of the required action in the books as it is holding me up a bit. Any help is appreciated! Thank you
What is the contractual relationship among the parties? Who does the client think they’re paying to do the work (and who do they complain to if the work is not up to scratch)? Does the agency simply introduce the client (landlord) to the tradesman (you) and then you directly invoice the client in your own name, or does the agency invoice the client and then sub-contract you to do the work?
If the former then your analysis sounds correct - you would invoice the customer for the total amount including commission and treat the commission as an expense, netting one off against the other as you describe using a holding account.
But if the latter then surely you just have to invoice the agent (not the client) for your normal fee, then it’s up to the agent to add their own profit margin when they invoice the client. You have nothing to do with the “commission” as your contract is only with the estate agent.
To be clear, all I have to do is invoice the estate agent for the £125. They then pay me my portion of the total, i.e. £100. I am assuming the agent must invoice the landlord the full £125, from which they will take their 20% commission. I think (and hope!) the double entry steps that I described earlier are correct.
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