Cash Basis Reporting for NetSuite

You know how you can just love a product for most of its features, but there’s one task or area of need that makes you want to pull your hair out? That’s how mid-market businesses frequently feel about cash basis reporting for NetSuite. 

In this blog we’ll start out with a brief review of the differences between the accrual basis and cash basis methods of accounting. Then we’ll explain how NetSuite’s architecture (built around the accrual method) presents challenges for its customers who want to use cash basis reporting. And finally, we’ll offer a solution that seamlessly integrates with NetSuite and quickly produces the data you need.

Accrual vs. Cash Basis Accounting

The two main methods of keeping track of revenue and costs in accounting are the accrual basis and the cash basis. There are situations for using each. It could be that a regulatory body requires you to report using one over the other. There are advantages and disadvantages to each method as well, which you’ll want to take into consideration if and when you have to choose an accounting method. 

On the positive side, the accrual basis (recording transactions when they occur as opposed to when there’s an actual exchange of money) provides an accurate view of your business’s overall cash flow and is the preferred method by investors and the accepted method for GAAP. The negatives to this method are that small businesses may not have the staff they need to manage it well. It requires monthly reporting and you could end up paying taxes on money you haven’t yet received.

Cash basis accounting is much simpler than accrual basis. With this method you only record income and expenses when you actually receive or make payments. It uses cash accounts, not AR or AP. The biggest advantage of cash basis is that it’s easier to learn and maintain. It also provides a current view of cash on hand, and there’s potentially a tax benefit. On the other hand, cash basis gives you a limited picture of your finances, can’t be used by all businesses and presents a challenge if you ever want to switch over to accrual.

NetSuite 101

Without a doubt NetSuite is an effective–and popular–accounting and ERP tool. It has more than 34,000 users around the world. Glancing through a few of the company’s blogs, it seems like cash basis reporting within NetSuite is effortless. There’s even a Help topic “Setting up Cash Basis Reporting.” But if you’re a NetSuite user and want to use the cash basis method, you have most likely been exasperated and puzzled by what should be an easy task.

Part of the problem is that NetSuite’s architecture is basically designed with accrual accounting at its foundation. That makes it difficult for users who want to use the cash basis method to glean the data they need from the platform.  Not impossible-but challenging. 

How Cash Basis Reporting for NetSuite Works

NetSuite offers cash basis reporting based on the following two accounting categories: The date on which accruals are recorded is the Transaction Date/Period. Think of this as the date that goods are shipped to a customer showing that there’s been a transfer of property rights. The Date-Closed/Period is when no more action is required from either you or your customer. For example, your customer’s invoice is fully paid or you have fully paid one of your own vendors.

Users can choose a number of reports in NetSuite that have a “Cash Basis” option. So when you select one of those options, NetSuite moves the transaction date to the date-closed. Keep in mind not every transaction will have a date-closed value, so those entries will maintain the transaction date for cash basis reporting. 

It should be noted that the cash basis period isn’t taken from the accounting period shown on the transaction record. That is also problematic.

Cash Basis Reporting Challenges

Reporting in this way presents several significant challenges. The first one is that partial payments won’t be considered “date-closed” until they are completely paid. This means that there’s an amount of cash that gets transferred but NetSuite won’t recognize it. 

The second deals with non-cash payments. These transactions also fail to show up on the cash basis report. For example, if a customer pays an invoice with a credit memo, it will be moved to date-closed when the credit is actually applied. Keep in mind, credit isn’t always cash-based.

And the third challenge lies in transaction header versus lines. In NetSuite the idea of paid transactions is connected to the header summary. But what you really want to know is in the transaction lines. Think about a vendor bill that in the header summary appears as $100. But it has two lines. One line shows an amount for training and the second line for supplies. If cash is used to pay the invoice, how do you allocate it between the two? 

Some NetSuite users have been known to keep up meticulous spreadsheets detailing every cash transaction. They do this so they can recast the data later in a more meaningful cash expenditure report. But these customers don’t have to undertake such time consuming manual efforts. The information they need is buried within NetSuite. They just don’t know how to access it. There are some creative ways to workaround the problem, but all are time intensive and complicated. 

Businesses that want to do cash basis reporting for NetSuite should consider turning to a cash management platform that efficiently solves the problem for them.

The Payference Solution to Cash Basis Reporting for NetSuite

Fortunately for those small to mid-market size businesses who are delighted with NetSuite but need help with cash basis reporting, there’s a simple fix. 

AI-driven Payference is an all-in-one cash management tool that integrates with NetSuite (and many other applications). It streamlines the invoice to cash process with automated invoices and electronic delivery, automated workflows, payment and overdue reminders, identification of cash flow problems, cash forecasting and cash application. At any point in time, customers can view their cash positions in real time with a few clicks.

Payference eliminates most of the time consuming, tedious manual tasks associated with AR and AP processes. And because it was built to meet the needs of small to mid-market businesses specifically, it doesn’t come with a lot of expensive features that you don’t need (or want to pay for!)

If you’d like to learn more about how Payference can solve your NetSuite challenges, take a look at this customer success story. Or reach out for a demo. We’d love to hear from you!