Ageing and payments terms all rely on the system analysing existing transactions and determining when they are due. There are two different methods of determining ageing:

• Open Item
• Balance Forward

You set the method for each customer separately.

With open item processing, the system looks at each individual invoice for a customer, and uses the invoice date to determine whether it is due or not.

In order for this method to work, you have to specify, each time you receive a payment from a customer, which invoice(s) they are paying. In other words, you have to match payments to invoices. This means additional work on your part. However, the system gives you the option of automatically matching all payments from the oldest invoices down. If a customer pays the full amount outstanding, you do not have to match each invoice.

With balance forward, the system does an approximation of which balances belong in which ageing periods. It does this by reading the invoice and payment transactions for the terms periods, accumulating all invoice values in their terms periods, and then applying all payment values from the oldest terms period down. Whatever is left is the ageing. This method requires no matching of payments to invoices at all.

Which method should you use? Here are some suggestions to help you decide. Instead of using one method all the time, we suggest that you choose a method per customer in order to optimise your processing:

• Day based terms require open item processing.
• Use balance forward processing for customers who pay you regularly and on time. If you invoice a customer a few times a month and they invariably pay you in the next period, there is no need to do extra work.
• If you create a cash sale account, use balance forward processing for that account.
• If you have a customer with whom you have queries on individual invoices, you need to leave queried items unpaid, and you would like these queries to show on statements each month, use open item.
• If you have a large number of transactions for a customer, and you need to reconcile each payment to individual invoices, use open item.
• If you often have credits, you may want to use open item processing to track these.
• If you intend to charge interest on overdue amounts, consider open item processing, since it will age interest charges more accurately.
• Open item ageing is more accurate than balance forward ageing.
• If you use cash based tax accounting along with open item processing for customers, the system cannot make tax adjustments until you allocate receipts to their original invoices. The system determines how much tax is due only by looking at the original invoices. If you leave receipts unallocated, you will fall behind in your tax payments and reporting.