This article is relevant if you have many electronic transactions and wish to avoid NetSuite’s Undeposited Funds transaction flow for high cash receipt volume.

Background

As a leading NetSuite Systems Integration Firm, my firm is frequently engaged in NetSuite to eCommerce integration efforts. In these kinds of efforts, we advise our clients on how to shape their money flows to properly recognize revenue and respective liabilities to ease the burden of account reconciliation.

I assume you use the Authorize AND Capture method for credit card transactions in this discussion. In my 2016 article, Using NetSuite Payment Methods to Drive Customer Deposits, I outline the importance of the customer deposit record to properly set up the liability when collecting cash before fulfillment.

I often see poor recordkeeping practices employed to capture the funds. My 2018 article, Best Practice: Account Clearing Method for NetSuite Electronic Payment Method Reconciliation, discusses the best practice and forms the background for this article.

I recognized the importance of this article to go further by presenting an example of the setup so that it is clearer how to implement the practice.

The High Volume Electronic Fund Clearing Account Method

The key to making this pattern work is to create virtual (pseudo or fake) cash accounts to record all the detailed fund deposits.  In the prescribed practice, this fund should have a debit (positive) balance as we expect to record our transactions very close to the time the payment gateway was exercised to capture order funds.

Depending on the policy for the payment gateway and related bank process providers to transmit actual funds, days may pass. When the funds are transmitted, they are most commonly batched in either gross or net merchant processing fees. These funds are typically deposited in an organization’s cash operating account.

The goal is to record a bank transfer (or journal entry — standard or custom) between the operating cash account and the virtual bank account. Thus, as our operating cash account is debited (cash being deposited), we credit the virtual bank account (we remove cash from the virtual account).

Use of Payment Methods to Avoid Undeposited Funds

In this flow, we can avoid using the native Undeposited Funds account. This native account is a catch-all that works well in low-volume cash receipt situations. But with high volume situations with multiple gateways, the account clearing method is highly preferred to stay in control and produce easier bookkeeping.

A payment method should be described as it relates to the payment provider. Click the related image to see where multiple providers are used for accepting payments. For example, it is not uncommon to see providers such as PayPal, Braintree, and Stripe used separately to collect funds on a modern eCommerce platform.

Our Payment Method is bound to a specific clearing account devoted to this practice. Click the related image to see the configuration pointing to a designated cash account.

Record Detailed Customer Deposits

As described in detail in the article, record electronic funds related to sales orders using the payment method against a customer deposit record. The system will automatically deposit cash into the virtual account.

Record Bank Transfers for Funds Deposits

As the bank deposits funds (in summary form) into the operating account, record a NetSuite bank transfer (or journal entry). This is further detailed in the related article.

Reconcile the Cash Accounts

With this pattern, it should be easy to reconcile the operating cash account because the shape of the transactions is in summary. Yet, it may be more challenging to reconcile the virtual cash account. In the related article, I describe how these funds are effectively “In Transit”. The key now is to assess the reasonableness of this balance.

NetSuite’s latest account reconciliation tools can be leveraged to produce a detailed reconciliation depending on how electronic record data is provided by the payment gateway. Merchant account fees must be accounted for in this flow in some manner between the virtual cash account and the operating account. In 2017, I described how my firm helped a client Ease the CyberSource to NetSuite Reconciliation Effort. We are frequently asked to configure or build custom NetSuite platform tools to solve our client account reconciliation challenges.

Model your NetSuite Driven Cash Accounting

The NetSuite platform is flexible, affording different ways to book transactions.  Modeling the business problem carefully and designing the accounting so that the day-to-day effort is easy to understand while keeping it under control is the key to good use.

If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you would like to shape your NetSuite-driven electronic payment processing to help with your bookkeeping challenges, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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