I received a question asking, what is the difference in making an invoice and receiving payment versus making a sales receipt for a retainer.
On the surface, there really isn’t a difference. Both allow you to enter retainers so they show up correctly in QuickBooks Online. However, you may choose to do one over the other depending on how and when your clients pay the retainer. Here are some things to think about when deciding whether to enter a retainer as a sales receipt or as an invoice and receiving payment.
Invoices are great if your clients pay the retainer over time and sales receipts are better if your clients pay you immediately. Let’s say you are the type of attorney that meets with a prospective client and in that meeting they pay you in full for the retainer so you will start working on their case. When you enter this into QuickBooks Online, it would be less steps if you enter it as a sales receipt. However, let’s say that client can only pay you a portion of the retainer, you would want to enter this as an invoice and receive payment for the portion of the payment you received.
Invoices are better if the client wants to pay for the retainer in a variety of ways. Maybe they want to pay a portion by check and a portion by credit card. These two deposits will come into QuickBooks Online separately. As they come across your bank feed, you will want to match up the transactions with what QuickBooks Online shows. Sales receipts only allow you to match up one deposit to them, so you wouldn’t want to make a sales receipt in this case.
Sales receipts are often times better if you are the type of attorney whose clients pay on a case by case basis. For example, a family law practice will typically get a retainer upfront for a divorce case. Their client may use them again in a couple of years to try to renegotiate custody. The attorney would collect the retainer upfront for the divorce and then again for the custody negotiation. In that case, a sales receipt would be better. However, an invoice would be better if you are the type of attorney that charges an annual or monthly retainer.
If you use QuickBooks Online to process payments via credit card or ACH your client’s bank account, a sales receipt will eliminate a step. You can select a button that says automatically charge the credit card when you save the sales receipt. If you use LawPay or some other service to run credit cards outside of QuickBooks Online, then an invoice may be just as quick to make as a sales receipt.
As you can see, there a couple of different scenarios as to why you would choose to make a sales receipt versus an invoice for a retainer. To see how to learn how to make these properly so they show up in QuickBooks Online, click here.