Accounting Best Practices, Fifth Edition

4–17. Use Automated Bank Account Deductions

In some industries, the invoices sent to customers are exactly the same every month. This is common in service industries, where there are standard contracts providing the same services for the same price and for long periods of time. Examples of such cases are parking lots or health clubs, both of which put their customers on long-term contracts to pay fixed monthly amounts. In these cases, a company issues invoices for the same amount every month to all of its customers. The customers then pay the same amount every month and the accounts receivable staff enters the same amounts into the accounting software as having been received.

When the same amount is due every month, a company can use automatic deductions from the bank accounts of customers. This approach eliminates the need to run any invoices, since the customers do not need them to make a payment. There are also no collection problems, since payments are automatic. Thus, this approach can completely eliminate the invoicing and collection steps from the accounting department.

Before implementing automatic deductions, one must first review the obstacles that stand in the way of a successful project. One issue is that some invoices will still be needed if a company elects to “grandfather” its existing customers, so that they do not have to pay through bank deductions. Another problem is that invoices are also required for the first month or two of business with a new customer, because ...