One of the most common comments I hear from new Bill.com subscribers is that they do not like using the clearing accounts that are auto-created by Bill.com. The clearing account process in Bill.com was developed to simplify the account reconciliation process and avoid issues when dealing with voided payments. In addition, it helps users more easily identify payments made/received via Bill.com vs. those handled by other methods.
The use of clearing accounts in accounting is a common practice. They are used for a variety of reasons, ranging from the need for simple temporary holding accounts to the need for accounts used to simplify transactions that are not well suited for journal entries. Bill.com uses clearing accounts for its payment and funds transfer transactions to help facilitate the bank account reconciliation process. Without the use of these clearing accounts, reconciling your accounts to their statements could be time-consuming and chaotic.
Overview of the Bill.com Payment Process
When paying bills via Bill.com, funds are transferred from your bank account to a Bill.com bank account. Payments are then remitted to vendors from the Bill.com bank account via check or e-payment. This process is managed in batches two times per day. On the payment process date, Bill.com makes a single withdrawal from your bank account for the total amount of all payments in the batch. When you view your account details online or receive your bank statement, you will see only the batch amounts and not the individual bill payments listed.
However, Bill.com still needs to sync the bill payments and link them to the bill transactions. If they were to sync those individual payment transactions directly to your bank account register, reconciliation would be more difficult. It would require you to try to match the batch amount on the statement to multiple transactions in the account. If a payment needed to be voided after the reconciliation had been completed this would further complicate the matter, since you would not be able to, or should not, void the cleared transaction.
How the Magic Works
To simplify the reconciliation process, Bill.com makes use of two clearing accounts. When you first set up your Bill.com account it was already pre-populated with the following accounts based on what features you had enabled:
- For accounts payable – Bill.com Money Out Clearing
- For accounts receivable – Bill.com Money In Clearing
When setting up your sync preferences, Bill.com automatically sets these as the default accounts for syncing bill and invoice payments.
When you schedule payments via Bill.com they will be synced to the Bill.com Money Out Clearing account in your accounting system. This includes payments scheduled for future dates. When the sync runs on or after the payment process date, Bill.com creates the funds transfer journal entry. This entry posts a debit to the clearing account and a credit to the Checking account. In the end, the clearing account should balance to $0.00 for the day.
Customer e-payments follow the same basic principle as bill payments, however there is one minor difference. Payments made by customers are posted in the Bill.com Money In Clearing register, with the dates the customer is scheduled to pay them. The funds transfer journal entry is posted with the date the funds arrive in your bank account. The difference between these dates can be 3-5 business days. Because of this delay there could be an overlap of transactions that will have an effect on your register balancing out to $0.00 at the end of each day.
‘But I Still Want to See All Bank Transactions in One Register’
For those of you who still cannot bear the thought of having the payment transactions in a separate register, there is an alternative solution. Creating a parent account and nesting the checking and clearing accounts under it will enable you to see all the transactions from the sub-accounts rolled into the parent register. This will include the payments and the funds transfer journal entries, both the debits and credits.
The basic setup instructions are provided below:
- In your accounting system, add a new generic bank account in your chart of accounts.
- Edit the existing checking account and Bill.com clearing account(s) to make them sub-accounts of the new generic account.
When the time comes to reconcile the bank account to the statement, it is recommended that you do so at the sub-account level. This will ensure that the transaction line items on the statement can be more easily matched with the transactions in your register. This will also eliminate reconciliation discrepancies in the event a payment is voided.
Please be aware, however, that there are two situations where this option will not work:
- Bill.com users who make or receive payments using two or more bank accounts in Bill.com
- Bill.com accounts that sync with Xero
Reconciling Your Clearing Accounts
Because you don’t receive a statement for the Bill.com clearing accounts, you may not be inclined to reconcile them. Reconciliation is not required but takes only a few extra minutes each month and will help in the early detection of errors. To reconcile these accounts, you should enter $0.00 as both the beginning and ending balances, then clear all transaction for the period. You can use the following reports found in your Bill.com account as guidelines for completing your reconciliations:
- Payables Reports: Funds Transfer Detail for Bill.com Payments
- Receivables Reports: Funds Transfer Detail for ePayments Received
Keep in mind that for the Bill.com Money In Clearing account, payments scheduled for the end of the month may not show as deposited until the beginning of the next month. For this reason, you may want to extend your period ending date out a few days.
Leave It to the Experts
Leave It To Bill.com, like many software vendors, does extensive research and works with industry experts to help develop processes that deliver the best integration experience to its users. By following these recommendations, you will encounter fewer complications, be less reliant on customer support staff, and be more satisfied with the products and their performance overall.
Updated and republished with permission from The Sleeter Group’s Blog Accountex Report