This article is written for accounting professionals, including Controllers, Managers, and CFOs, who want to reduce time spent on low-value manual clerical work through automation provided by NetSuite customization. Do negative balances in Accounts Receivable cost you significant time each month to clean up? If so, this article presents a transformative solution that will fully automate the manual work.
If A/R cleanup is not burdensome for your accounting team, skip to the section “NetSuite Thought Leadership” for a generalized synopsis of best practices that the tool incorporates, which can be applied to a variety of situations.
TL;DR Summary
Negative A/R balances stem from unapplied credits that belong in liabilities, and manual cleanup is slow and error-prone. Automating clerical work frees up accounting teams for higher-value activities. The Prolecto A/R Credit to Deposit Converter, provided as a no-license cost tool in our Prolecto Customer Deposit Utilities Accelerator Template, automates identification, netting, and conversion to Customer Deposits with full linkage, delivering clean A/R, accurate liability reporting, and no manual work while improving overall A/R hygiene.
Introduction: Negative A/R Challenges in NetSuite
Negative balances in Accounts Receivable present challenges for accurate reporting and reconciliation. These balances typically arise from unapplied payments or credit memos waiting to be applied against future invoices. Ideally, these balances should be classified as liabilities, but the effort to reclassify individual customer balances while preserving the utility of actionable transactions is cumbersome.
Controllers and A/R managers often resort to journal entries at month-end to reclassify credits to a liability account, as this seems like the fastest way to align the balance sheet with reporting requirements. While this clears up the presentation issue, it introduces new problems. The A/R subledger no longer reconciles cleanly, and the balance in the target liability account lacks a detailed subledger. Moreover, the liability account lacks actionable transactions for future application against A/R debits.
NetSuite Customer Deposits: Drive Intelligent Ledger
NetSuite’s customer deposit functionality provides a reliable way to record and manage funds received in advance of invoicing. Instead of unapplied “dangling” amounts in A/R, customer deposits are correctly classified as liabilities until they are applied to a future invoice. This keeps the balance sheet presentation accurate and maintains a clear link to the customer record. By using customer deposits, finance teams gain proper reporting, while operational staff retain the visibility they need to track and apply funds to upcoming transactions.
Customer deposits can also serve as an alternative to complex revenue-recognition schemes by providing a clean liability workflow: capture the cash receipt, defer recognition (often called deferred revenue) until the invoice is issued, and avoid the overhead of advanced revenue rules or schedules.
Because customer deposits are designed to hold funds until they are applied to invoices, they are potentially a solution for handling unapplied credit memos and unapplied payments. Instead of leaving these amounts in A/R, where they distort aging reports, creating customer deposits for any unapplied payment or credit memo presents them properly as liabilities and makes them actionable against future receivables. If each A/R credit could be converted to a customer deposit, this would be an ideal way to solve both the balance sheet classification and the need for A/R functionality.
The challenge is that NetSuite does not provide a native, automated way to perform this conversion. For organizations with large transaction volumes, doing the work manually is impractical and inefficient.
Prolecto’s Customer Deposit Expertise Serves as the Foundation for Resolving Negative A/R Scenarios
Our expertise comes from two sources:
- Client experience
Since 2016, we have worked side by side with clients across many industries in the specific domain of customer deposits. We guide them through complex accounting challenges, operational issues, and NetSuite configuration decisions. Across hundreds of engagements, we have developed a deep understanding of how negative A/R situations occur and what it takes to correct them at both the system level and the process level. - Accomplishments
We have transformed this experience into proven, field-tested solutions that we deliver through our Accelerator Templates. These templates give clients repeatable tools for customer deposits, credit-to-deposit conversions, cash application accuracy, and stronger financial controls.
The accelerator templates below contain powerful solution sets for Customer Deposit accounting
The Prolecto Customer Deposits Generator:
A solution for handling non-parallel Revenue and Billing timing without complicated Revenue Recognition technology. The solution allows the generation of invoices with proper accounting and natural cash receipt operations that automatically become customer deposit records.
The Prolecto Customer Deposit Utilities:
A set of solutions, including a utility to transfer Customer Deposit balances from one customer to another, and the utility described in this article to convert A/R credits to customer deposits in bulk.
Based on solving client problems over the past two decades, Marty Zigman has written extensively on the topic of Customer Deposits. Here is a reference to a manual approach to converting A/R credits to Customer Deposits: How to Convert NetSuite Accounts Receivable Credits to Customer Deposits, and here is a reference to the Credit Memo to Customer Deposit Conversion Tool.
See also:
- 2023: Drive NetSuite Customer Deposit Requests from Sales Order Lines
- 2023: Learn How to Drive NetSuite Customer Deposit Requests
- 2019: Generate Customer Deposit Request Invoices on NetSuite Projects
- 2017: Create NetSuite Customer Deposits from Opportunities or Estimates
- 2016: Solved: NetSuite Customer Deposits and Advance Payment Accounting
How we solve negative A/R for clients
To address this challenge, we developed a tool called “Prolecto A/R Credit to Deposit Converter” as part of our Prolecto Customer Deposit Utilities Accelerator Template. In a nutshell, the A/R Credit to Deposit Converter tool consists of:
- Identification: A way for NetSuite to systematically identify customers with unapplied balances,
- Netting: clear those balances with controlled offsetting transactions, so that all that is left are credits, and
- Generation: create one-for-one customer deposits for the remaining credits linked to the original records.
The specific steps for solving negative A/R
Here’s a more detailed overview of the components of the A/R Credit to Deposit Converter tool:
The data inputs for the cleanup work are based on saved searches that represent the scope of work that the scripts need to assess. Saved search criteria can be easily modified by a competent NetSuite user, enabling maximum control over which customers or balances are evaluated.
After identifying the customer in the situation, we do cleanup work on the customer’s balances by applying open accounts receivable credits against any existing accounts receivable debits. We added a mechanism to net down balances first, ensuring that each open transaction amount truly represented a candidate for conversion to a liability. The process runs in a fully automated way, yet allows control of the work scope in advance.
Our scripted solution then takes the results that are indicated by the saved search for the solution inputs and goes to work. It creates “clearing” transactions to debit A/R in the amount needed, and offsets the balance with a credit to a temporary clearing account. We use a custom transaction type for this purpose, as shown below:
The tool then creates customer deposits that naturally credit the customer deposit liability account and debit the clearing account used on the “clearing” transaction entries. The use of a designated clearing account allows us to monitor for any anomalies or errors that might cause a mismatch between customer deposits and the original A/R credits. A balance in the clearing account indicates a mismatch that needs to be examined. Typically, this should not occur, but it helps us understand whether we can always trust the automation. Once the process runs, the clearing account should have a zero balance.
We also leverage one of our utility tools called “PRI Linked Transactions” (PRI stands for Prolecto Resources Incorporated) available in the Prolecto Utilities Bundle Accelerator Template, to maintain links between the original A/R credit transactions, the custom clearing transactions, and the newly created customer deposits.
This allows easy reporting and a 360-degree view of the transactions.
Chidi Okwudire, who leads our Technology Practice, wrote an excellent article on the powerful pattern for creating rich, bi-directional links between related transactions in NetSuite, which explains the PRI Linked Transaction model.
Our Thought Leadership: Better Solutions Driven by Platform Enablement
What I really like about this solution is that it encompasses several elements that demonstrate how we at Prolecto approach technical innovation within NetSuite. This specific solution may or may not be relevant to you, but the “best practices” for solution design are instructive. Consider the automations you might be thinking about for your organization and use the guidelines below as design benchmarks:
- Business First: Satisfy both operations and accounting needs
The solution satisfies both the need for correct GL classification and the operational needs for customer-level collection and balance management. Our team includes accredited accounting professionals and members with decades of varied business experience. We strive to avoid lopsided customizations that solve a problem in one area but create a problem somewhere else. - Configurable: Empower users to self-manage
The input parameters are not buried in code. Any competent NetSuite user or in-house Admin can modify the saved searches that control the scope of automation. This is a matter of policy for us. We use records and UI structures wherever reasonable to allow our clients to self-manage the variables, without needing to edit scripts. - Transaction Types: Avoid ambiguous transactions or records
Custom transaction types and our custom Linked Transaction solution provide context, enabling records to satisfy auditor scrutiny and future business continuity considerations. New team members will not have to guess at the reasons for transaction entries. We advocate against generic journal entries for repetitive transactions, as they tend to be ambiguous and often rely on free-form memos for context. - Trustworthiness: Provide controls and monitoring for stability.
Automation should never take the place of prudence and sound judgment. A controller’s nightmare is discovering problems with balances that were thought to be accurate. A good finance professional will want to know how they can trust the system’s automatic operations. We think about “what could go wrong?” and then ask “how can I detect problems?” and then create control searches for monitoring and to manage by exception.
By keeping the process structured and repeatable, automation ensures consistency across high volumes of transactions. It eliminates the guesswork and clerical burden associated with manual entries, while also preserving the details needed for audit trails and reconciliations. Most importantly, it aligns the financial reporting view with the operational view so both controllers and collections staff see the same information and can act on it with confidence.
Video: Prolecto A/R Credit to Deposit Converter In Action
For a walkthrough of the solution in action, including how the process looks inside NetSuite, you can view the demonstration video linked here. It shows the steps the tool takes to identify unapplied balances, process the conversions, and provide transparent reporting back to the finance team.
Get the A/R Credit to Deposit Converter
The Prolecto Resources A/R Credit to Deposit Converter available inside the Prolecto Customer Deposit Utilities Accelerator Template represents ways that Prolecto designs and crafts solutions that leverage NetSuite’s building blocks for automation, ultimately making a measurable difference for the Accounting and Operations teams. In line with the innovative solutions developed in our Labs, this tool is accessible to our clients without licensing fees.
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