Which Account Method For My Practice?

Which Account Method For My Practice?

Estimated reading time: 6 min

RxWorks incorporates two methods of accounting for client sales and payments. These are:

  • “Balance-Forward Accounts Receivable”
  • “Open Item Accounts Receivable”
  • Both systems record details of any amount owed by your clients. In the case of over-payments or applied credit, amounts owed by the practice to a client are also recorded.
    The differences between these methods relate to payment application and the appearance of client statements. Read on from the article indexes to the right for further information.

    RxWorks strongly recommends using the ‘Balance-Forward Accounts Receivable’ accounting method. Balance-Forward is applied as a system default for all new practice installations.
    You cannot have a mixture of both Open Item and Balance Forward accounting methods in RxWorks. All clients will be accounted for by either method you choose. The vast majority of veterinary practices use Balance Forward Accounts Receivable as it is much easier to administer.

    Balance-Forward Accounts Receivable

    In ‘balance-forward’ accounting, each transaction for a client is pooled into a single total balance. A client’s balance increases when items and services are billed, and the balance decreases when a payment or credit is applied.

    Key Points:

  • Payments are applied against a client’s total outstanding balance.
  • Outstanding balances from a previous period are “carried forward” as the new opening balance on an account statement.
  • The opening balance is not itemised.
  • New invoices, payments & credits incurred within the current accounting period are itemised on the account statement.
  • Ageing is calculated from the date of the invoice.
  • Open Item Accounts Receivable

    In traditional ‘open item’ accounting, each invoice transaction a client makes has its own balance. Payments are allocated to each invoice until the invoice balance is zero.
    RxWorks uses a slightly different approach to open item accounting, in that each invoice is automatically an ‘account’ as well. This means that in RxWorks’ open item accounting, payment is allocated to an outstanding account – not an outstanding invoice. This has some impact on payment allocation and debt ageing calculations.

    Key Points:

  • An Account may be composed of a singular invoice or a collection of invoices.
  • Payments are allocated against individual accounts.
  • Individual accounts remain unpaid until sufficient payments have been allocated to reduce the balance to zero.
  • Details of all payments or credits that have been applied to the account are retained. The identity of transactions is not “lost” in a total balance amount.
  • A cumulative total of all outstanding account balances is shown as the client total balance.
  • Ageing is calculated from the date of the account.
  • Payment Application

    This article index will cover:

    1. Adding Payments in a Balance-Forward System and
    2. Adding Payments in an Open Item System.

    Adding Payments In A Balance-Forward System

    In ‘balance-forward’ accounting, payments are applied against the total balance owed by a client. The total balance may be a single invoice amount or the total of a number of invoices, less any payments or credits.
    Below is an example of a payment applied against a client total balance.

    The balance is normally “aged” into amounts based on how long they have been unpaid. Typically the ageing analysis shows the amounts owed for up to 30 days (current period), 30 to 60 days, 60 to 90 days and over 90 days.
    Payments are applied against the oldest balance first. Any amount that is left over is taken off the next “youngest” balance, and so on down to the current balance.

    Example Scenario

    Mrs Smith owes us a total of 1,500.00. The break-down of the total amount owed is as follows:

  • 350.00 – over 90 days old.
  • 1,100.00 – 45 days old (in the 30-60 day aged balance).
  • 50.00 – 10 days old (in the current balance).
  • Mrs Smith makes a payment of 500.00 against the balance as shown.

    As a result of the payment, the amount outstanding in each of the aged periods is as follows:

  • No balance owing that is over 90 days old.
  • 950.00 owing in the 30-60 aged balance (1,100.00 less the 150.00 left over after paying off the 350.00 in the 90 day balance).
  • 50.00 owing in the current balance.
  • The total outstanding balance is now 1000.00.
  • Below is the summary section of an account statement showing aged balances related to the transactions on the financial screen. Click on image for larger version.

    Allocating Payments In An Open Item System

    The ‘Open Item’ accounting method applies payments to individual account balances, not the total balance owed by a client. An additional step is required when taking payment so that you correctly apply payments against the required balances.
    When adding a payment, the payment allocation window is shown.

    You can choose to allocate payment to an existing account, and choose the amount to be paid. Alternatively, a payment can be allocated to a specific transaction by selecting the transactions from the list.

    When the account is fully paid it no longer shows in the client’s financial work area as being ‘open’. The account is also removed from the payment allocation window.

    Important Notes

    Though it may seem that you can allocate payment to an individual invoice transaction, the actual payment process is as follows:

  • A transaction is selected for payment and the payment amount is specified.
  • The transaction is immediately converted to an account.
  • A payment is applied to the account.
  • If the account is not fully paid, ageing of the remaining balance begins at the account creation date.
  • The point at which a transaction is converted to an account is variable depending on your practice financial processes. Once a process is decided upon, it is important to adhere to it. This will minimise confusion about the status of outstanding accounts.

    Client Account Statements

    Account Statements are normally produced monthly and show how much a client owes you. Account statements are used for clients that have a charge account or owe money at the end of your accounting period. Clients who pay immediately after treatment, and have no outstanding balances, do not get an account statement.

    Balance Forward Accounts Receivable Statements

  • Statements begin with the amount owed by a client at the beginning of a period (this is called the ‘opening balance’ and could be zero).
  • The opening balance is followed by each invoice created and payment received during the period.
  • Transactions are shown in ascending date order.
  • At the end of an account period, statements end with the amount owed by a client – called the ‘closing balance’.
  • An ageing analysis of the closing balance can be shown on the statement.
  • Below is the summary section of an account statement showing aged balances related to the transactions on the financial screen. Click on image for larger version.

    Open Item Accounts Receivable Statements

  • Open Item account statements do not have an opening balance.
  • Each open (unpaid) account is shown with any payments that have been applied to it. These payments are not necessarily made in the period covered by the statement.
  • The closing balance is shown. This is the total of all open invoices less the payments that are shown on the statement.
  • An ageing analysis of the closing balance can be shown on the statement.
  • Below is the summary section of an open item account statement showing open accounts and balance ageing. Click on image for larger version.

    Choosing an Accounting Method

    The type of veterinary practice you operate and the requirements of your clients must be considered when choosing which accounting method to use.
    The role and capabilities of your staff must also be considered. Ask yourself questions such as:

  • Do I need my staff to process payment quickly and simply allowing them to focus on patient healthcare and service?
  • Are my staff primarily in an accounting and administrative role?
  • What Is Your Practice Profile?

    Use Balance Forward
  • In a busy small animal practice where payments are made at the time of their visit, balance-forward will allow payment to be processed faster.
  • In a mixed animal practice where most payments are made at the time of treatment, but some clients pay off a monthly account.
  • Use Open Item
  • Treatment sheets for an equine practice are entered at the end of each day. Each account for a trainer may then be passed on to their clients. Open Item will allow payment against specific accounts.
  • Your clients require the ability to make payment against accounts of their choosing.
  • What Are Your Staff Profiles?

  • Balance-forward is a simpler accounting method which most people will be able to manage with confidence.
  • Open Item is more complex and may be best handled by staff that have accounting or book-keeping experience.
  • Regional Regulatory Requirements

    It is a regulatory requirement in the Netherlands that any details of outstanding debt be shown and so Open Item Accounts Receivable is mandatory. All other regions may choose based on staff and practice profile.

    What We Recommend

    Balance Forward is chosen by the majority of practices.
    Open Item accounting requires much more administration than balance forward accounting. Fortunately, most clients of veterinary practices do not need the extra details provided by Open Item Accounts Receivable.

    Default Configuration And Switching Systems

    Most veterinary practices use balance forward accounts receivable. RxWorks recommends and uses Balance-Forward by default.

    How do I change the accounting system used? – Do I need help to do this?

    This task may only be completed by a trained RxWorks technician.
    “Click here to talk to an expert”, then RxWorks Support Team can assist in changing your accounting method.

    Can I change accounting methods part way through?

    Changing the method is not recommended unless it is absolutely necessary – such as new laws or regulations that force a change.
    It is possible to switch from Open Item to Balance Forward but this will involve a considerable amount of effort. The total of all unpaid invoices would have to be aged manually and adjusted in each client’s account.
    It is even more complex to switch from Balance Forward to Open Item. Each outstanding balance will need to be broken down into unpaid invoices and the details posted to each client’s account.

    If a change to accounting method is required, you will require the assistance of your accountant and an RxWorks consultant. Consulting service charges will apply for any data manipulation performed.
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