QuickBooks, Excel, Cash Flow, and Technology

QuickBooks Tip – How To Record Payment Processing Fees

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QuickBooks Tip – How To Record Payment Processing Fees

A common problem people have when recording payments received from customers in QuickBooks is when fees are taken out prior to the payment funding so that the net amount received is less than what the customer actually owed and paid.

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When this happens you go to record a payment from the customer and if the customer paid (eg) $5,000 you only received $4,855.00 because the payment processor took out 2.9% or $145.00. The problem is if you only record $4,855.00 as the payment received then it will look like your customer still owes you $145.00 when they don’t.

The problems:

  1. The customer paid the full amount.
  2. We only received the amount net of fees.

The trick is that we have to stop taking these forms so literally. The Receive payments screen in QuickBooks in more generic terms is where we give a customer credit for having paid the full amount of their invoice, regardless of what we have received. Now the temptation here is going to be to record a discount in order to account for the fee. This does have to be taken literally. I don’t like doing it that way. It works but it tells the wrong story. We did not give the customer a discount, we were charged for the privilege of getting paid via credit card or some other electronic means. That’s the story we want to tell and the answer is actually really simple.

Here is your answer:

  1. Process the payment as though you received the full amount of the customer’s payment, and make sure it goes into the Undeposited Funds account. Problem 1 solved.
  2. Record the deposit. Initially you will have the whole $5,000. Add a line item for -145.00 (yes a negative number). Under “From Account” book it to “Credit Card Processing Fees” or whatever equivalent account you use. Problem 2 solved.

This tells the right story. The customer paid me in full but before I received the funds my payment processor took their cut.

Please post your comments and questions below! If your question warrants it, I will record a video reply.


About the Author:

I started Nerd Enterprises, Inc. in 2003 and continue to work with individuals and companies to cure their financial headaches. Training, writing, blogging, social media and generally building communities around these areas as well as technology has become another passion of mine.


  1. INEZ  May 1, 2013

    Thank you so much! This tutorial was simple to understand and made perfect sense.

    Here’s my follow up question: Moving forward, this is a no brainer to implement and would be a tremendous asset to our company. Is there anything that can be done for invoices/payments of months and even years past? Are those invoices doomed to stay open with minimal amounts on them forever?

    Thanks again!


    • NERD  May 1, 2013

      Write them off with an entry in the current year. Book it to some expense / loss account.

      • INEZ  May 1, 2013

        How would you suggest going about this? It would have to be entered as a received payment to match the open invoice, right? Would I then go to deposit the money and reflect it as wire losses are you showed in this tutorial?

        Here’s a good example of what’s been happening:

        We get money wired in. The company pays the full amount and the third party bank takes a fee. It is usually 20-25 dollars per wire. The bookkeeper before me would enter the net amount and this has left invoices open with balances of 20-25 dollars. There are multiple companies in this situation and one company with about 15 open invoices this way. The company currently knows they are because of the fees and kind of just overlooks it. But it bugs me and is not a true representation of what has been paid. I would love to correct this, but fear it might affect years worth of taxes or financial statements.

        I don’t know if I should leave what has been done in the past as is and then implement this new method from this point forward.

        You have been such a tremendous help.

        Thank you again!

        • NERD  May 5, 2013

          Going forward you handle it the same as the CC processing fee only it goes to Bank Service charges instead of CC processing fees. Cleaning up the past might be tricky. If your returns have already been filed and you file on a cash basis then your income was understated (by the amount of all the fees which were left as unpaid amounts on the invoices. At the same time your CC processing fees (expenses) were understated so it’s a bit of a wash. Best thing to do is probably record an entry on Jan 1 of the current year writing off the balances (because it’s really a wash between income and expenses in the end). Instead of using “Bad Debt Expense” as the account to write it off to (Debit) use Bank Service Charges. The journal entry will post in the current year which will cause the cash basis income from those invoices (the previously unpaid portion) to show up as income in the current year and then that will be offset by the Bank Service charges which will also show up as on 1/1/13.

          • INEZ  May 7, 2013

            Thank you again! You have been super helpful. Do you have an email address where I could ask a more specific question?

            Thanks again!

          • NERD  May 7, 2013

            Umm. You’re on my website. Just have a look way over top right and use the contact us form? Or scroll all the way down to the bottom and all of our contact info is listed there.
            Or you see that old fashioned looking phone on the right? Give that a click and give us a call!

  2. LEIMAN  June 27, 2013

    Hey Seth,

    If I just wanted to post a whole month’s worth of fees would i just do a journal entry? I basically do not want to record the fees one transaction at a time. Any suggestions? Thanks!


    • NERD  June 28, 2013

      The only problem with that is that it is not how your bank is charging you so your reconciliations will be come more challenging. If you are off in reconciling you will have no way of knowing if you mis-keyed the amount of a fee in adding up the whole month without going back and re-keying that. So I think it’s better to follow the banking when you post your fees, but outside of that sure you can post a monthly entry. The expenses will be correct by the end of the month.

      The other thing to consider is your bank balance. If the bank takes the fees out of every transaction and you are posting the gross amounts of your transactions then your bank balance will be overstated until you post the fees at the end of the month.

  3. GANDALF  July 30, 2013

    “This tells the right story.” Thank you for pointing this out. I try to explain to clients all the time that we can’t combine transactions, or skip steps, or just summarize. We have to show every part of what happened.

    I only recently started taking electronic payments. Say what you want about Intuit (I sure have!), but Intuit Payment Network is the best electronic option that I have found. I started out using Dwolla, but my first Dwolla payment took 10 calendar days to find its way to my account! Thanks, “Nerd”, for your helpful illustration.

    • NERD  July 30, 2013

      Thanks! I still love PayPal. It’s easy and contrary to what many people think because they’ve been “duped” by the other payment processors, it really is about the least expensive processing option out there.

  4. ANDREA  October 17, 2013

    How would this work for GST?
    The payment processor takes out transactions fees and also a commission, both of these have a GST component. Although I’m not registered for GST, it won’t be long before I will and I need to track the GST paid.

    • NERD  October 19, 2013

      GST is like sales tax. If they deducted it from you then you should show that deduction as a reduction from the gross payment (just like a processing fee) and then it should go to some balance sheet account so that when you go to pay your GST you can deduct that amount as having already been paid.

  5. DWIGHT  February 4, 2014

    Thanks for the process to enter credit card fees. My CC processor charges a percentage plus a transaction fee. The formula in Excel is (Invoice Total *.029)+.15. Is there some way to have Quickbooks calculate this fee from the invoice total?

    • NERD  February 9, 2014

      Unfortunately there is no way to get QuickBooks to produce a calculated field like this! You can do the math right in QuickBooks as you are entering the transaction though.
      Check this video here: How to Do the Math in QuickBooks

  6. SHANA  February 20, 2014

    I have a situation that still confuses me after reading your post…

    – we are a newspaper company
    – We accept credit cards- not through quickbooks but a different merchant.
    – We have customers that pay on their invoices, buys subscriptions, buys print jobs, ect with credit card.
    – I understand about how to apply the payment to the invoice and applying a negative number for the fee in the deposit window….
    – what about those that come to the window and buys a print job? How do i initially get that in QB? Do i have to create an invoice for each person that does this? Some days we have 5-10 other days 0.

    – I’m also having trouble matching up the customer credit card payments with what has actually been deposited in our account bank account (due to fees taken) whats your suggestion to make this process easier?

    • NERD  April 8, 2014

      Hi! Normally you would create a sales receipt in QB for each buy.
      When the CC company takes out the fees before funding (ie they fund net) it creates an accounting nightmare. The first thing I would do is call your processor and tell them you need the payments funded gross and the fees taken separately. Tell them you’ll find another processor if they aren’t willing to do it. It’s THAT important.
      Meanwhile what I have done in these cases is (1) get online access to the processor and then (2) make their customer service rep stay on the phone with me and help me tie out every single deposit from Gross to net. This way you don’t have to struggle and they can share in the “burden” in terms of the cost of the time you need to spend figuring out their mess!

  7. BRIT  March 13, 2014

    When entering multiple invoices under a payment it keeps jumping back to the top opposed to just letting me click each one. If i look each one up then it doesn’t jump back to the top. This is very frustrating and consumes a lot of time. I used to be able to just keep going down consecutively entering my discounts. Please help!

    • NERD  April 8, 2014

      I would really have to see what you’re describing to be able to help. I’m not sure I’m clear on what is going on. When you are in the receive payments screen you should be able to enter the amount, and then if necessary click “unapply payment” (if QB hasnt applied it correctly). Then you should be able to check off the invoices and scroll down as needed until you’ve applied the whole payment.

  8. ADISACK  April 7, 2014

    How does this work for QuickBooks online? Also, when there’s no invoice for the client, how do I handle this? For example, my customers went on a website and paid for my product. If I sell the product for $500 but only got a payment of $475 because my CC payment system has already taken out their fees of $25, how do I record this transaction.


    • NERD  April 8, 2014

      It works the same in QBO. The screens look a little different but it basically looks the same.
      If you have web sales there are a few ways people handle this. Often times a single customer is created called “Web Sales” and you book sales receipts for that customer for each sale. Otherwise you book 1 invoice for the entire day and the book individual payments on that invoice for Visa/MC, Amex, and any other payment method that will ultimately fund together.

      If you REALLY want it simple and using your example.. Book a deposit with 2 line items. Sales (Income) for the gross sale of $500.00 and then a second line item for -$25.00 booked to CC Processing Fees. This way your deposit will net out to the right amount that actually went into your account and your sales will be accurate as will be your CC Processing Fee Expense.

  9. MATT  April 8, 2014

    Hello Nerd,

    I don’t mean any disrespect, but this method of recording payment processing fees (or in my case wire transfer fees) separately in the Make Deposits screen, is Nonsense. Don’t get me wrong, it works. But it is needless extra work. And, it is not a true reflection of what occurred (more in the case of wire fees).
    QuickBooks is set up to record these fees seamlessly in Receive Payments. In my case, the wire payment comes in as a net amount with the fee already deducted. In QB, you can receive the payment as the net amount. Select to Receive payment, enter the net amount. In the receive payment screen, select Discounts and Credits, and choose your Wire Fee expense account and enter the amount of the fee. Save and Close. This records the payment correctly to match your bank statement and records the expense correctly offsetting the total amount of the invoice. More importantly, there are no extra screens to go to as in your method. Also, I record the payment when it occurs. A few days later, I do a make deposit for all credit cards that cleared that day for that type of card, as it does on the bank statement. Easy peasy.
    As for payment processing fees, I record these separately as an expense for the total amount, also as it occurs on the bank statement. To be honest, we don’t care about offsetting the customers payment. I look at it as this is our service that we pay for. And I’d rather make it less complicated than more. I have more important things to do. But that is our choice.

    Regards, Matt
    QuickBooks ‘Master’ (7 yrs as QB TechSupport)

    • NERD  April 8, 2014

      No offense taken. First and to be clear. The method I am showing only applies when the fees are taken out prior to funding into the bank account. If the fees are paid separately then of course they should be recorded separately as you point out in your comment.

      When the fees are funded net, however – the main reason I disagree with you on this, probably comes from having been an auditor – using a discount tells the wrong story. It suggests I gave my customer a discount instead of what really happened, which is I incurred an expense for the privilege of processing payments via credit card or wire.

      If you ever want to sell your company, or get financing from a bank and they dig deep enough into your books it can raise questions (and even doubts) which can be avoided by booking it the way I’m suggesting.

      In reality, it’s not a whole lot of extra work. You’re already booking a payment on the invoice. Then you still have to record the deposit. All you’re doing here is adding a line item in the deposit to show the “right” story – that you didn’t get that full customer payment because a fee was deducted.

  10. ELISE PEREZ  April 14, 2014

    Hi Seth! Thanks for the awesome tutorial! My question is are we allowed to charge the customer the credit card processing fees, and if so, what kind of item would be created for this ‘other income’ that we receive or would we just list it as part of the sales income? Example, sale is $1500, and we are charged 2.75%, so the total we will be charged by the credit card processor is $41.25, our we allowed to tell the customer that the sale price is $1541.25? Or is this against any laws? I was signed up for Intuit’s Go Payment credit card processor but had to cancel my monthly subscription because it wasn’t in our best interest, as most of our customers pay via cash or check. I guess my concern is for large amount sales transactions, do you have to just foot the bill for these credit card costs?


    • NERD  April 20, 2014

      Hi Elise. You can’t really tell the customer you are charging $1,541.25. Keep in mind also that the CC processor is now going to charge you 2.75% of THAT number which will be a little more than the $41.25. Of course you can charge a “convenience fee” for people who want to pay with a CC. That would be an item linked to an income account for (eg) Convenience Fees.

  11. NEISA REID  April 24, 2014

    Another way I have processed these is to enter the funds received. QuickBooks then asks you what to do with the underpayment. I then tell it to write off the underpayment to credit card charges or whatever account you use for such. The correct information is retained but in a shorter process.

    • NERD  April 24, 2014

      The correct information is retained, but as I’ve pointed out to others it still tells the wrong story. It says that we are writing off the difference instead of booking a fee incurred. These little details matter.

  12. HENI  May 20, 2014

    Hi Nerd – Thanks for the tutorial. I’ve been searching for a while for an answer to my questions and this is the first post that actually made sense and brings me closer to a solution. I do have additional questions because of a slight twist…

    We have a client who is requiring us to use a third party vendor in order to get paid for our services. The way it works is that our client submits the invoice amounts to the third party; we approve it in the third party’s system; the third party vendor then takes a 4.5% cut of our invoice along with an additional processing fee. I can use the steps you mentioned above in order to show that our client paid off their invoice and when I make deposits my check register won’t be off by the amount of the fees. The problem is, technically we are paying this third party vendor for their services. Our client on their end would only show that they paid us the full amount. I need to be able to show how much we have paid to the third party vendor for tax purposes at the end of the year. Setting up an account specifically for this expense would work but I still need to have the fees show as being paid to that specific vendor and not our client. Is that even possible with QB?

    • NERD  May 25, 2014

      To be very honest I think you lost me on this one. If I DO understand there are two fees to record. One for the processing fees and one for the 3rd party vendor. So when you record the deposit you can show 2 line items, one for each fee as a negative amount. Then under “received from” you can put the vendor name so that they get associated with the expense.

  13. ERIC  May 22, 2014

    Thanks a lot for the simple tutorial. Been wondering how to do this for a while now, and the bookkeeping part of running my business is on the half of my brain that is virtually unusable. :)

    • NERD  May 25, 2014

      SO glad this helped!

  14. JUDY DAVIS  July 10, 2014

    Thanks for making this an easy explanation! A lot of misleading creative accounting out there :)

    • NERD  August 11, 2014

      Thanks Judy. Glad it helped!

  15. HTTP://BESTGRILLSREVIEWS2013.COM  September 15, 2014

    When I originally commented I clicked the “Notify me when new comments are added” checkbox and
    now each time a comment is added I get three e-mails
    with the same comment. Is there any way you can remove people from that service?
    Thank you!

    • NERD  September 16, 2014

      I think you just have to uncheck the option now. Do you not see that option?

  16. LISA DEUTSCH HARRIGAN  November 11, 2014

    Hi Seth –
    Just ran into this and I see a lot of people think the Discount is the way to go. They are Wrong! I thought that too, and then I ran a Statement for the client, and it told THEM they only paid the discounted amount. How confusing is that? Especially for someone who is paying on installments. Mind you it showed them what they correctly still owed, but it was very confusing as to how it got there.
    I have various ways to record the discount (depending on how the fees are deducted), but it is now NEVER done on the Receive Payments screen any more. It makes for a messy statement.
    PS How different? Many of my processors do batch deposits, so I batch the fees, either on a Sales Receipt (if there is enough sales that way) or as a credit memo. I treat Paypal as a bank account, so I record the fees once a month when I reconcile (it’s a line item on their financial report so the total is easy). Most of my clients have lots of little purchases we don’t need to track in QB, so batching is my friend.

  17. GABRIELLA  December 2, 2014

    Hi there!

    We’ve been using this method for recording and matching all of our PayPal transactions. We’ve now had a couple of PayPal payments that we have refunded. How do you process the credit memo and refund in Quickbooks for a PayPal transaction that was originally recorded using this method?

    • NERD  February 28, 2015

      When I process a refund in PayPal I write a check to the customer. The transaction has to be split. You start with the gross amount of the original sale. Then you subtract from that, the portion of the fee that PayPal gives you back. This way you net out to the amount that PayPal actually deducts from your account. No credit memo needed when you do it this way. If inventory was involved then use the item that was originally sold in the items tab on the check form with the original gross sale amount. Then put the fee refund in the expenses tab.

      • CINDY  August 19, 2015

        I appreciate your reply to this question about refunding. I am having trouble wrapping my head around the fact that I am “writing a check” when, in fact, I am refunding via M/C and NOT writing them a check………..

        So, if I am refunding a customer with their M/C or Visa account, would I still “write a check” so that the fees can be deducted and it will show in my check register the exact amount that M/C deducts from my account? I don’t want the customer’s account to show that I wrote a refund check when I didn’t. Sorry, but I just can’t get it…………..

        • NERD  August 27, 2015

          If the fees will be deducted from your bank account, then yes you would write a check. The customer doesn’t see what you do in QuickBooks. You are simply capturing what happened from your end – the bank took money from your account. All the customer will see is that a credit appears on their credit card statement.

  18. MELANIE  December 8, 2014

    I am working in QB’s online and I am trying to enter the credit card fees as a negative number but it keeps telling me the value is out of range. What am I doing wrong?

    • NERD  February 28, 2015

      I have no idea. I would have to see what you are doing. It should work as long as you are not creating a negative total.

  19. CINDY  December 31, 2014

    The above was a great tutorial for everything but quickbooks online. On the deposit screen there is only 1 line for the amount to deposit. Cannot separate the original amount between the fee and the amount actually deposited in the bank account. I find most things are harder and more complicated in the online version so I am at a loss.

    • NERD  December 31, 2014

      Of course you can have more than one line in a deposit in QB Online, and you can add more lines as you need them.
      See screen shot here:

  20. ROSS  February 5, 2015

    My question I got payment from a customer but after we deposit and did this deposit .
    The customer wanted to returned the item he purchased, and now I am trying to do my bank reconciliation
    and I have the diffrence of 7.60 that was my merchant fees.
    when I record my deposit I deduct my merchant expense as you said, but know I returned the money to my customer
    I have a difference of 7.60
    Can you help me please….

    • NERD  February 28, 2015

      The only think I can think of is that you are not showing the gross sale before deducting the $7.60. If you show the net sale and then deduct the fee you are effectively deducting the fee twice and then you would be off on your bank rec.
      The refund is a separate issue.

  21. CHERI  February 17, 2015

    Hello –

    When we take CC payments, we charge a flat 4% fee – to cover merchant fees, as well as a small convenience fee for taking CC payment – that is included on their invoice. I have entered in the credit card fees during deposit, and thought all was well, until I printed out a P&L and noticed it’s showing my Bank Service Charges as a negative number (because it is entered in as a negative to make the deposit amount jive). Am I missing something – I would think the charges should be showing as a positive number (which is then deducted from the P&L).

    • NERD  February 28, 2015

      If the CC Processing fees are negative it’s because that 4% you’re charging is more than what you’re paying in fees and you’re booking that to the same account. If the reimbursement exceeds the fees, then the fee will be negative. You’re better off mapping that 4% fee to an income account. You can call it reimbursed expenses. This way you will have positive income (which is what that really is) and a positive expense (which is exactly what happens when you put a negative # in a deposit and book it to an expense account).

  22. DIANTJE  March 27, 2015

    Hi there, I hope I have not missed the explanation of an additional wrench to throw into all of this. My client could only wire money to us in payment of an invoice, so agreed to pay the bank fee for doing so. However, he did not add the fee to his wire payment, so it was deducted at his end, creating a $10 shortage in payment. I understand how to record the payment with the service fee, as you’ve described, but how can I make it so the fee is billable back? There is no column to connect the fee to him or make it billable. What is the best way to go about this?

    • DIANTJE  March 27, 2015

      Okay then, I just realized that on the Make Deposits page, if I put the client’s name under Received From next to the Bank Service Charge that it will appear as an expense billable to him. So…….never mind. I did get a lot from this thread though, and I enjoy your video explanations. Thanks.

  23. KAREN  April 3, 2015

    Thanks for the information. You’re so good at this, I’m hoping you can help me with a similar issue. We work with insurance companies and when they retract a payment, rather than letting us send them a refund check, they start taking amounts out of future claims for other patients until their credit is gone. For instance, they say they paid claims on 3 patients totally $1,500 but they have a $500 credit left from an earlier patient due to an insurance retraction so they send us a check for only $1,000. Due to using electronic claims processing, the patient accounts are credited correctly to equal $1,500 and those payments are now in Make Deposits/Payments window. When I enter them to deposit, my deposit is off by $500. I tried adding a -$500.00 and associating it with a separate account we call Chargebacks, which works perfectly for accounting purposes but QB won’t print a deposit slip if it has any negative numbers in it, even if the total is not negative. I tried changing it to a “NON” payment type but QB says it will only take “Check” and “Cash” in the payment type for a deposit. Any ideas of a non-convoluted way of accomplishing this or forcing QB to print a deposit slip somehow?

  24. NJ  April 3, 2015

    Seth – thanks for your video and explanation. I have one problem – I have to do this 40 times each month for each invoice since almost all our clients use IPN, and these are recurring charges. Is there a way to memorize this transaction so that when you Receive Payment via IPN, it automatically deducts $.50 and credits to COGS, and deposits the net balance directly to our checking account. I used to Receive Payments directly into the bank checking account (since all is IPN), and reconcile the difference using a bank charges line item once a month, which was simpler but will treat Bank Charges as an expense and not COGS. It sure beats doing the Make Deposit method from Undeposited 40 times a month.

  25. MARGEB  April 18, 2015

    This is a popular post, going on two years!

    Just wanted to say thank you for this simple explanation. I have been booking two separate transactions, one to receive the payment, and one for the Paypal and now Square fee. Can’t believe how simple and obvious this is, it never occured to me to put a negative amount in as a line item!

    I don’t think I have to do anything for my past deposits as everything is in the correct account, but just incorrectly shows an extra transaction for every deposit. Going forward, our bank acount will look much cleaner.


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