How to Reconcile Bank Transaction that is Less than Invoice Amount Due to Bank Fees and Merchant Fees Like Paypal and Stripe being Deducted

Sometimes when you sell something to someone online you might charge them $20. But when the money hits your bank account, it might be $18 - or an amount less than the invoice because bank or merchant fees (e.g. $18 because of a $2 merchant fee e.g. from paypal or stripe) have been taken out.

This means there’s a mismatch between the amount you’ve invoiced your customer and the amount that is in your bank account which means that you can’t directly reconcile the bank amount with the invoice amount.

This post will show you an easy way where you can reconcile the bank amount (which will be lower) with the invoice amount along with recording the bank or merchant fee (merchant fees are like paypal fees, stripe fees etc…). I use SageOne accounting software so the below screenshots use SageOne, but… if you use other accounting software, the concept and principles are the same…

There are multiple ways to do this e.g. some suggest sending out the ‘full invoice amount’ to the customer and then editing it afterwards. That’s ok, but it does involve some rework. An easy way and the way I like to do this is to:

Split the bank payment (e.g. $18) and reconcile it to two separate parts, the first being the invoice amount ($20) and the merchant fee (-$2). You’ll have to create a merchant fee and put it into a merchant fee expense account.

Here’s how you do it in SageOne:

  1. Create the invoice for the full amount – this is the invoice that you’d send to the customer and that the customer would pay with. E.g. $20.

  2. When it’s time to do your bank reconciliation (this is just matching what’s in your bank to your transactions created in the accounting system), find the transaction for that invoice. It might be less than the invoice amount because of the paypal/stripe/merchant fees that were taken out and Click on “Split Payment” in Xero.

  3. Allocate the invoice amount in and put in the amount of the merchant fee in negative. You’ll need to ‘add a new account’ for this – you can put it under “expenses” or “cost of sales” account category. Once done, click Save.

  4. Then you’ll need to allocate the receipt to the invoice – check out my bank reconciliation in SageOne guide (to come soon - please comment below if you need it earlier).

What the above does, is that you have an invoice for the full amount (that you’re free to send to your customer and not have to worry about fiddling with later) and then will have also recorded an expense for your merchant fees so that you’ll see them in your reports.

Next: Receipt from Paypal for services delivered by company, who do I put as a supplier in supplier invoice - how to account for it?

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