Inprotech: Refunding Money to Clients

The Accounts Receivable module is a little clunky when it comes to giving money back to clients. A little clunky is a bit of an understatement, it doesn't actually handle it at all so there is a workaround. Luckily, giving money actually back to customers is not something that happens all that frequently (rather than leaving the credit on account).

Assume that the client's account is in credit. Maybe this is because they paid a deposit in the first instance and it wasn't all expended or you over estimated the associates charge (or the exchange rate moved!) or there was a refund of fees from the IP office because of overpayment of fees (might have to write another little story as to how to handle that as well!).

Whatever the reason, the client is in credit, you have sent them a statement so they know and they want their money back rather than keeping it on account for future work. Somehow you have to get the funds off the debtors ledger and back into their hands.

Here's what to do:

1. Set up a reason of Client Refund, applicable only to AR.
2. In your GL Interface mapping (you brave enough to go in there?) go to the Debtors Revenue accounting and set up a mapping for the Client Refund reason to go to Suspense in your General Ledger (I am assuming everyone has one of these accounts).
3. In Accounts Receivable raise a debit journal against the client account that matches the amount in credit. Use the new Client Refund reason. The mapping that you have just set up will cause the Suspense account to be creditted.
4. Apply the outstanding credit against the debit item just raised so that it is cleared off the client's debtor account.
5. You now need to get the money to the customer. Go to the Accounts Payable and if there is no tax applicable use Manual Payment function to raise the payment. Use the Account only facility. Enter Suspense account as the applicable expense account. The debit created here will nett off against the credit raised in AR.
6. If however there is some tax applicable as a part of the refund you will need to raise an invoice to sort the tax out. The expense account in this instance still must be Suspense so that the item raised in AR is cleared and Suspense can reconcile. You then pay the invoice through manual payment selecting the entered invoice as the one to be paid.

The issue, of course, is that you need a supplier to be able to raise the cheque and/or payment. One way to do this is to make the client a supplier as well so the payment process can be run. I'm not a big fan of this because it clutters up your supplier list with clients for transactions that probably only occur once or twice for the customer.
My preferred method is to have a Miscellaneous Supplier for one off payments rather then set the specific supplier up. This is not just refunds but any spurious invoice that comes along rather as it saves setting up the supplier each time.
This way you can just enter the details of the client and the refund into the description field and this can be printed on the remittance advice and by doing a manual payment you can type in the Drawer Name to print on a cheque, if that's how you are paying them. If its by EFT you have to raise that manually but at least you have a remittance advice!
Phew!! That was easy. Happy to take questions at this stage. Yes, you in the front row....