How to account for transaction fees

SystemSystem Posts: 316 admin

imageHow to account for transaction fees

If you're one of the many business owners who uses credit card processing as a method of payment, then you’re more than familiar with transaction fees (also known as merchant fees). Most credit car...

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edited January 14, 2019 in Help Center Discussion
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  • dofzindofzin Member Posts: 5

    This article could do with some clarifying points (or some explanations for the non-standard way Wave does things). The article in one place refers to Discounts, which is a contra-revenue account, and in another place refers to Payment Processing Fees, which is an expense account. Can I use either, or is the article incorrect? Why is Wave dictating this? I would expect to be able to use any account that makes sense for my business in accord with GAAP. With respect to the sign of the number (per above, you can only enter "negative" numbers in certain accounts, although they are really neither negative or positive, just debits or credits), perhaps it would be much easier to allow direct entry of debit and credit amounts. What if a contra-balance account must be used for reversing a discount? What if I want processing fees to show up as a cost of sales rather than an expense account? What if I want to take an overpayment as a customer deposit (a liability) or record application of an overpayment when recording payment of an invoice? Why can't I choose the correct account based on my own Chart of Accounts organization? By trying to make this simpler for some people who are less familiar with accounting, it seems you've hampered your software, made the design overly complex, and made it difficult to understand for anyone with even the most basic accounting knowledge.

  • phildphild Member Posts: 2

    It does not seem to work as described and it is as dofzin points out confusing. it refuses to allow the creation of a negative amount for a new account , such as bank charges.

  • elisemartinsonelisemartinson Member Posts: 7

    After following the instructions and clicking save, the transaction does not reflect the higher amount (ie. $100) even after refreshing... and therefore the system will not allow it to be merged with its invoice payment. This used to work before the updates, a bug?

  • SophiaSophia Administrator Posts: 147 admin

    Hi @dofzin @phild, thank you for your feedback, I've passed it along to the accounting team. Where the article refers to Payment Processing Fees and Discounts interchangeably, it's referring to the overall category you need to select from the dropdown menu in order to make that portion of the transaction a negative amount. To your note @dofzin, you can record customer deposits or overpayments to a liability account using the split feature; this article describes those steps.

    I really appreciate that you took the time to share your concerns and I've reached out to the team for clarification on the capabilities and future plans for this feature.

  • SophiaSophia Administrator Posts: 147 admin

    Hi @elisemartinson, could you clarify where you're seeing this error so we can dig into it for you? It sounds like you're trying to add an additional amount to the transaction total using the split feature. This often happens when the amount you see on your bank statement is less than the invoice total. For example, if your customer paid a $100 invoice, but the processing fee was $3, you'd see a deposit of $97 in your bank account.

    To account for this, split the transaction, and categorize an invoice payment of $100 to the invoice in question. This will associate it with the proper invoice and mark it as paid. On the second line of the transaction, select the "Discounts and Fees" category, and then the processing fee category. You can also add your own processing fee account here, as well.

    Now when you save the transaction, your total will match the original transaction: $100 + ($3) = $97, and the invoice will be marked as paid. Let me know if I can help further!

  • tplusfivetplusfive Member Posts: 3

    Is there a way to attach a receipt for the processing fee?

  • HappyWaveUserHappyWaveUser Member Posts: 2

    This is a very complicated process which should be resolved by using an accounting software most accounting software's including a new release from Quick-books automatically imports line item details from bank especially PayPal i sell on eBay and for me to do this to the hundreds of transaction a day i have coming into my account is just not feasible this honestly is the only reason me and many of the other business owners i speak to do not up for wave a feature like this which is basic would not only save many hours of manual work it would also be amazing to sea how much sales tax i collected as this is a detail offered from PayPal line item details i have been following wave for many years not and waiting for this feature so that i could finally switch accounting software's because honestly wave is better in every other way than most of the paid for software's however this one issue would cause to much manual work its just not worth the switch at the moment i hope wave follows the feedback from their customer i'm sure all other eCommerce sellers are in the same boat as me if you can just add this feature you would open your platform to the enormous amount of eCommerce sellers that need accounting software's

  • SophiaSophia Administrator Posts: 147 admin

    hey @tplusfive that's not currently possible but it is a feature our team is hoping to add.

    @HappyWaveUser thank you for your feedback and for taking the time to describe your business processes. It's really helpful for the team to have this kind of detail, and I'll make sure they see your comment.

  • tplusfivetplusfive Member Posts: 3
    Thank you Sophia :)
  • sunnyt7sunnyt7 Member Posts: 20

    Why is there no easy way to calculate the bank fee? If I receive $97 and associate it with the invoice, to account for the fee I need to:

    • Open my invoices to see what the actual total was ($100 in this case)
    • Change Category 1 amount from $97 to $100
    • Split the transaction and select Discounts and Fees as Category 2
    • Pull out a calculator and manually calculate the different between $100-97

    Most other accounting software has a button that says something like "$3 balance remaining on invoice. Allocate to Bank Fees or was this a partial payment?"

    That's way easier then doing the 4 steps above for every single transaction.

  • JamieDJamieD Administrator Posts: 1,114 admin

    @sunnyt7 When you create an income transaction for the invoice itself -- you should be able to categorize this as the total amount paid by the client, and then split the transaction into the net pay as well as the merchant fees. In the transaction itself, it will tell you whether or not what you need to enter in terms of incorrect balances (see screenshot for example). We automatically factor in the merchant fees when payments are automatically accepted via Wave, but the process for manual payment remains the same -- it could be something that's changed in the future, but no immediate plans as of right now.

  • sunnyt7sunnyt7 Member Posts: 20

    @JamieD the issue is that Wave doesn't say how much is remaining. For example, if your invoice is 1483.81 and you received a payment of 1375.23, it doesn't tell you what the fee amount is. You need to pull out a calculator and do the math yourself.

  • MzBusinessMzBusiness Member Posts: 1

    I'm sorry but this process does not seem to be correct. The guidance appears to advise users to increase the sale amount by the payment processing fee and then minus it (which will still reflect the original sale amount). Following this process has actually resulted in my COGS figure to go down and I have a weird outstanding amount to pay within 30 days (for the processing fee amount). Could you fix this please.

  • BarbBarb Member Posts: 4

    I almost took the advice above until I saw MzBusiness comment. Can someone please provide the proper process? I am still learning how to book keep. Sales are my thing, not accounting! If I do something wrong, I won't know how to dig myself out of the hole! It would be so much easier if Wave accepted PayPal, then I wouldn't have to bill separately through PayPal then transfer to my bank and manually record, match and apply it to my Wave invoice. I don't know how to fix it without messing up.

  • AlexLAlexL Administrator Posts: 1,569 admin

    Hi @MzBusiness . Your Income Statement will show the correct balance here because it also shows the expenses and total balances. Can you provide me with more of a workflow as to how you're receiving payment and the steps afterwards as well as the issues you're having with this? Screenshots may help here.

  • HappyWaveUserHappyWaveUser Member Posts: 2

    @Sophia said:
    hey @tplusfive that's not currently possible but it is a feature our team is hoping to add.

    @HappyWaveUser thank you for your feedback and for taking the time to describe your business processes. It's really helpful for the team to have this kind of detail, and I'll make sure they see your comment.

    Any possibility this will be implemented soon or at least is there an ETA I've been following wave for years now just waiting on this feature and I'm a user

  • JamieDJamieD Administrator Posts: 1,114 admin

    @HappyWaveUser The feature is something that's being discussed still (adding a receipt to a transaction) -- hopefully we have an ETA that we can provide to our users soon, but we still don't have a defined timeline as to when this will be available.

  • czyadgrlczyadgrl Member Posts: 10

    I keep struggling with this workflow as well even with the automatic transactions created by Wave Payments.
    I've noticed some slight changes to how they are reported/categorized over the past few months and today noticed (what I think is) another change vs. before.

    Looking at my Transactions list and trying to review them all.
    I had an invoice to a client for $250.
    They paid $250 with their credit card.
    The invoice view shows that $250 was paid by the customer.

    Then in my transactions list, it shows a few things related to this sale:
    1.) An invoice payment to Payments by Wave "Account" of 247.50, that lists the invoice number and customer name.
    This is incorrect. The customer paid $250.
    And that is what should be ending up on my sales totals/sales reports/etc.
    There is no actual transaction in existence where my customer directly paid me or Wave $247.50.
    If that were the case, the actual invoice should show that they still owe me $2.50.
    My customer's receipt is for $250.

    I see that expanding this transaction shows the merchant fees subtracted from a $250 payment.
    But looking at the list quickly, it looks like the customer didn't pay the total invoice.

    2.) Transfer out of Payments by Wave Account of $247.50.
    Yes, this is correct and actually happened and I'm so THRILLED that this type of transaction is now automatically happening :)

    3.) The matching deposit/transfer into Checking of the same $247.50.
    Also correct, and I'm really happy that I can now automatically match this up with the transfer out of the Wave account.

    It would be great/more transparent to see that merchant account fee either as a separate "withdraw" transaction from the Wave account. OR maybe separated out in the corresponding deposit to checking transaction, so that the amount the customer paid to the invoice is preserved/totals out correctly.
    Currently, it appears as though the merchant fee transaction is missing or the customer paid the wrong amount on the invoice.

    It's kind of nice to have some streamlining, but I think this may be where it appears more confusing than it actually is : ) at least for amateur bookkeepers/small business DIY accountants such as myself. I like to see EVERYTHING to help ensure I get things matched up correctly.

    ** ETA: The transaction description of #1 mentioned above being changed from JUST "Invoice Payment" to "Invoice Payment less merchant fees" would probably clear things up a little. As I have now noticed that I cannot edit the transaction at all.

    Thanks, love the recent changes!

    edited April 12, 2019
  • JamieDJamieD Administrator Posts: 1,114 admin

    Hey @czyadgrl ! Thanks again for the honest and detailed feedback about the new bookkeeping changes to payments by Wave (glad it's now automatically tracking these transactions for you once the bank deposit is received). Also, I do agree with you that the merchant account fee could be more visible rather than being buried in the invoice payment transaction itself as a split. This is some feedback that I would be happy to pass along to my development team to see if there are any plans of adding something like this in the future.

  • jhfelectricjhfelectric Member Posts: 5

    Hello,
    I cannot follow these instructions as the transaction panel says "Multicurrency invoice payment transactions cannot be edited on the transactions screen, please edit the payment directly on the invoice to make changes to this transaction."
    Although it's true I have 2 currencies in the system, I have invoiced using EUR, declared a payment using EUR and transaction is in the EUR account. So why can't I split this payment ?
    When heading to the invoices panel, there is no way to split the amount received into +Invoiced and -fees. Can you help ?
    Thx

  • JamieDJamieD Administrator Posts: 1,114 admin

    Hey @jhfelectric. In this particular situation (since it's not possible to split an invoice payment once it's been marked as paid via the invoice itself) you will want to create an income transaction that reflect that total paid out amount.. and from there, you will be able to split the transaction (with the first category being the payment received for invoice) and then the second category being the merchant account fees associated with that invoice. I hope I'm clear enough on this, but if not.. please let me know -- this would mark the invoice as paid and properly include the merchant account fees in the split.

  • jhfelectricjhfelectric Member Posts: 5

    Hello JamieD,
    Thank you for your reply. It is clear I guess what I have to do:
    1. create a new income transaction (no category) = Deposit of paid amount on EUR account + Save
    2. Edit transaction = split into Sales (billed amount) and Fees (difference Billed-Paid) + Save
    Following 1 and 2 works fine, but I cannot select an invoice number as first category.
    In step 1, if I select 'cash on hand' instead of EUR account, the system proposes to select an invoice, but my invoice is not in the list. In the screen shot here, I click on "payment received ..." but the list is empty. If I select EUR account, the "payment received..." item does not show up. Any clues ?

  • JamieDJamieD Administrator Posts: 1,114 admin

    Ahhh okay -- to confirm, is the base currency in your business different than the EUR for your invoice? @jhfelectric. If so.. this is something that's currently not possible (associating a transaction with an invoice not in the base currency of your business). Our accounting team is exploring the possibility of adding this soon so please stay tuned (and thanks for your understanding in the meantime).

    You will need to create a separate expense transaction to account for the merchant fees in this case.

  • jhfelectricjhfelectric Member Posts: 5

    Yes, the base currency is MYR, the invoice is in EUR.
    I hope you can get this fixed soon.
    Thank you for your help.

  • nappenappe Member Posts: 4

    @JamieD said:
    Ahhh okay -- to confirm, is the base currency in your business different than the EUR for your invoice? @jhfelectric. If so.. this is something that's currently not possible (associating a transaction with an invoice not in the base currency of your business). Our accounting team is exploring the possibility of adding this soon so please stay tuned (and thanks for your understanding in the meantime).

    You will need to create a separate expense transaction to account for the merchant fees in this case.

    @JamieD Hi, I also have the same problem, my base currency and invoicing currency is difference.
    could you please provide any method for tracking invoice in wave ?

    edited July 13, 2019
  • AlexLAlexL Administrator Posts: 1,569 admin

    Hey @nappe . As Jamie said, at the moment you will have to create a separate expense transaction to account for the merchant fees.

  • BM61816BM61816 Member Posts: 1

    Hi there. Just to confirm - the PayPal integration does not result in Wave charging any transaction fees, correct?

  • JamieDJamieD Administrator Posts: 1,114 admin

    Hey @BM61816. That's correct, the PayPal integration will not cost anything extra in Wave. You can add any bank connection in Wave at no extra cost.

  • brianonwebbrianonweb Member Posts: 1

    Why can't Wave determine that a recurring invoice paid with a credit card (using Wave payment processing) has fees split from the payment automatically? It seems that if a Wave invoice is getting directly paid using a credit card, the transaction would/could automatically split between net payment and fees it charged, no?

  • MyronMyron Administrator Posts: 143 admin

    Hi @brianonweb , when an invoice is paid through Payments by Wave, it will automatically record the customer payment as well as the transaction fee. How this is displayed on your Transactions page, depends on the version of Wave you are using. In the older version of Wave, you will see two separate lines, one showing the total amount the customer paid and the other showing the transaction fee deducted. In the newer version of Wave, you will see both the customer payments and the transaction fee deduction in a single split entry. Do you see it recorded through either of these methods?

    edited August 1, 2019
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