Paying a Supplier who is also a Customer

and vice-versa

Article ID: 2024668           Last updated: 19 April 2016

 

You may have a situation whereby a customer is also a supplier and you wish to 'contra' what you owe to them with what they owe you. 

Solution Summary

Use a 'Contra' bank account to both 'pay' the supplier and 'receive' payment from customer.  The values paid and received reflect the value that you wish to 'contra' between the customer/supplier.  The Contra bank will temporarily hold 'notional' funds to facilitate the transfer between customer and supplier accounts.

Step by Step

Assume that Jim Gardener owes us £500 for materials that we supplied to him.  Jim's company also cuts the lawns of the factory and he invoiced us £150 for the last mowing job performed.

We want to reduce Jim's £500 customer balance by his £150 supplier invoice.

 

Step 1 - Create a Contra Bank account, if required

Go to the Accounts menu> Accounts List and check if you have a Contra Bank account (or similar) already setup.

If need to setup a new bank account, click the New button:

Bank Account Setup

  • Select the Detail Account option.
  • Select Account Type: Bank
  • Provide an appropriate Account Number of your choice.
  • Provide an appropriate Account Name of your choice.

Step 2 - Record the Sale and Purchase transactions

If they've not already been recorded, enter both the sales and purchase invoices to and from the customer/supplier.  In our example, Jim Gardener is now a Debtor owing us £500, and a Creditor to whom we owe £150. 

Step 3 - Record the Contra payments

1.  Receive Customer Payment

Go to the Sales menu> Receive Payments window.

Receive Payment

Record a receipt of £150 into your Contra Bank account and allocate it to the relevant invoice(s) you wish to settle with the receipt.  

Set the Date to the date on which you consider the invoice(s) to have been settled.  Record the receipt.

Result:  The sales invoice balance has been reduced by the received amount and the Contra bank account now contains £150 of 'funds' with which we can settle the supplier invoice.

 

2.  Pay Supplier

Go to the Purchases menu> Pay Suppliers window.

Pay Suppliers

Record a payment of £150 from your Contra Bank account and allocate it to the relevant invoice(s) you wish to settle with the payment.  

Set the Date to the date on which you consider the invoice(s) to have been settled.

Result:  The balance of the purchase invoice has been reduced by the amount paid and the Contra bank account has returned to a zero balance.

 


Disclaimer:  This information is of a generic nature.  For specific advice regarding your particular circumstances please seek assistance from your Accountant or HMRC as appropriate.

 

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