How old are your unpaid invoices, really?

An electrical contractor, about $521,000 of revenue last year. Closing the books, one customer had not paid in almost three months. The owner put the odds of ever collecting at 50 percent, then said maybe 30.

His idea was to move the invoice into the new year. See if the customer pays. If not, give up on it then.

I said no, and the reason is simple. His books are cash basis. On cash basis, an invoice nobody has paid is not income. It is not in his financial statements. It is not in his taxes. Moving it changes nothing on the return.

What moving it does change is the truth. The receivables report would say the work was billed this year, not last. The invoice would look one month old instead of three. Six months from now nobody would remember why.

The flip side matters too. If that customer never pays, there is no deduction for the loss. You never paid tax on the money, so there is nothing to take back. Cash basis owners sometimes expect a write-off at tax time that doesn’t exist.

So the invoice stayed where it was. I set up a credit for the bad debt that can be reversed if the customer pays. I turned on automatic reminders for that one customer only. And I turned on card payments for him, with the 3 percent fee, because an easy way to pay beats another phone call.

What to do before year end:

1. Run your receivables aging report.
2. For every invoice over 60 days, call the customer. Don’t email. Call.
3. Turn on reminders and card payments for the slow ones.
4. Decide which invoices you are giving up on. Write them off. Don’t redate them.
5. If you are on cash basis, remember none of this lowers your taxes. It just keeps your books honest.

In QuickBooks Online, go to Reports and open Accounts receivable aging summary. Click the number in the 91 and over column. Check each invoice date against when the job was actually done. If they don’t match, someone moved it.

If your receivables report has invoices like this, start the 5-minute intake.