Removing Finance Charges in QuickBooks: A Step-by-Step Guide

QuickBooks offers a robust system for assessing and tracking finance charges on overdue customer invoices. However, there are situations where you need to remove these charges, either due to a payment received, a change in policy, or an error.

Methods for Removing Finance Charges

There are several ways to remove finance charges in QuickBooks, depending on the situation and how they were initially applied.

1. Deleting the Finance Charge Invoice

If the finance charge has already been applied and exists as a separate invoice, the most straightforward method is to delete the invoice.

1. Locate the Finance Charge Invoice: Use the Search bar in QuickBooks and search for the customer’s name or the invoice number associated with the finance charge. You can also find it by reviewing the customer’s transaction history.
2. Open the Invoice: Click on the finance charge invoice to open it.
3. Delete the Invoice: In the invoice window, look for the “Delete” button, usually located in the bottom toolbar or under the “More” dropdown. Click it.
4. Confirm Deletion: QuickBooks will ask you to confirm the deletion. Click “Yes” to proceed.

Important: Deleting the invoice removes the finance charge completely. Ensure this is the correct action. You might want to consider voiding the invoice instead, which preserves a record of its existence but sets the balance to zero. (See method 4).

2. Applying a Credit Memo

Instead of deleting the invoice, you can create and apply a credit memo to offset the finance charge amount. This approach keeps a record of the finance charge while effectively neutralizing its impact.

1. Create a Credit Memo: Go to “+ New” and select “Credit Memo” under the “Customers” column.
2. Select the Customer: Choose the customer to whom the finance charge was applied.
3. Specify the Account: In the “Account” field (the item column), select the same account that was used when initially creating the finance charge (e.g., “Finance Charge Income”).
4. Enter the Amount: Enter the exact amount of the finance charge you want to remove.
5. Save the Credit Memo: Click “Save and Close” or “Save and New.”
6. Apply the Credit Memo to the Invoice: Open the finance charge invoice. Go to “Receive Payment”. Select the customer, it should automatically show the credit memo as a credit. Click “Save and Close”

3. Editing the Original Invoice (Not Recommended)

While possible, directly editing the original invoice to reduce the outstanding amount is generally not recommended. This can create discrepancies in your historical records and might not properly reflect the application of a finance charge and its subsequent removal. This method is best avoided if at all possible. However, in some rare edge-cases, it might be the only option. If editing the original invoice, create a clear note for audit purposes explaining the change.

4. Voiding the Finance Charge Invoice

Voiding an invoice is similar to deleting, but instead of removing the record entirely, it sets the invoice amount to zero. This is often preferable to deleting because it maintains a record of the invoice for audit purposes.

1. Locate the Finance Charge Invoice: As with deleting, find the invoice.
2. Open the Invoice: Open the finance charge invoice.
3. Void the Invoice: In the invoice window, look for the “More” dropdown (often near the “Delete” button). Click it and select “Void”.
4. Confirm Voiding: QuickBooks will ask you to confirm. Click “Yes” to proceed.

Choosing the Right Method

The best method depends on your specific needs and accounting practices:

• Deleting: Use when the finance charge was clearly applied in error and no record is needed.
• Credit Memo: Use when you want to remove the finance charge but maintain a record of it. This is useful for tracking adjustments and providing transparency.
• Editing: Use only as a last resort and with careful documentation.
• Voiding: Use when you want to nullify the invoice while maintaining a record of its initial creation. This provides an audit trail.