If you're using QuickBooks Desktop for multiple currencies, and you’re tracking time to invoice for services in foreign currencies, you should proceed with caution. There’s a little-known bug in QuickBooks Desktop that could cost you big time.
You might be incorrectly charging your clients. If you’re overcharging them, they’ll no doubt tell you about it. If you’re undercharging them, it’s likely they won’t tell you, and you’ll be leaving money on the table. I discovered it in the Canadian version of Desktop, but it also exists in the U.S. version – and it hasn’t been corrected over time.
Let’s take a look at how invoicing foreign customers for service items in their native currency is supposed to work.
I’ve created a service item called “Consulting,” which has a standard price in U.S. dollars, the home currency, of $100. I’ve also created a per-item price level called, “Euro Price Level,” which is tied to the Euro currency. In it, I’ve specified that any customer with the Euro Price Level will have €100 appear as the default (custom) sales price, and this price will not fluctuate with the exchange rate.
Foreign Currency Figure 1
Now I'm going to invoice Eugene’s Euro Cuisine, who has been assigned the Euro Price Level, for one hour of consulting. I’m going to enter this service item manually on the invoice, and I'm not going to use time tracking to do this for me.
Eugene is going to be charged €100. The rate of exchange that's in force on the date of the invoice (€1 or 1 Euro = $1.20 USD) is irrelevant as far as the default selling price to Eugene is concerned. That €100 is worth $120 USD behind the scenes to our QuickBooks company at that exchange rate, but it doesn’t change the fact that Eugene sees he owes €100.
That’s part of the beauty of multi-currency.
Foreign currency figure 2
Now, let’s see what happens when I use time tracking in order to bring that one hour of consulting onto Eugene’s invoice, instead of entering it manually.
First, I enter the time that my employee, Shane Hamby, spent providing Eugene with the service called “Consulting.”
Foreign currency figure 3
Next, when I tell QuickBooks that I want to invoice Eugene, I get a message that this customer has outstanding billable time and/or costs, so I select the radio button to select billable time and costs to add to this invoice.
Foreign currency figure 4
Next, I select the time that Shane spent for inclusion on this invoice.
Foreign currency figure 5
Look at the default Euro selling price when that billable time is brought over onto the invoice: It’s €83.33333, not the €100 that I specified in the Euro Price Level.
How can that be?
Foreign currency figure 6
When a service item is time-tracked, and then brought over onto the invoice for a foreign currency, QuickBooks Desktop ignores the price level set for this service item. Instead, it takes the home currency base selling price ($100 USD) and divides it by the exchange rate in force on that date (1.2 in this case). $100 USD divided by 1.2 is €83.33333.
Foreign currency figure 7
If I’m not careful, I might send this invoice to Eugene for €83.33, rather than €100, thereby under-invoicing him. I’d have to overwrite the default €83.33333 price with the €100 in order to correct this glitch.
This example, in which the foreign currency (the Euro) is worth more than $1 USD, leads to the potential to under-invoice foreign customers in their native currency. It’s possible that an under-invoiced customer might not notice the “deal” they’re getting, or, more likely, they’d notice it and stay mum about it.
In other words, I’m leaving money on the table.
On the flip side, let’s take the case of the Canadian dollar, which is worth much less than the USD at this point in time. The exact opposite would happen: I’d be in danger of over-invoicing my Canadian customer if I were to use service items based on time tracking to populate an invoice. If that were to happen, it’s likely the Canadian customer would notice being overcharged and complain about it.
Therefore, if you’re using time tracking to populate a foreign currency invoice with service items, don't rely on per-item price levels to give you the proper foreign selling price. Review the default selling price that appears on the invoice in the foreign currency, and over-write it with the foreign selling price that would appear if you were entering the service item onto the invoice manually.
I’m hoping that QuickBooks Online, whenever per-item price levels are introduced, will fix this glitch. No, I don’t know when that will be…but I’ll be waiting! Esther
About the Author
Esther Friedberg Karp, MBA, is the owner of EFK CompuBooks Inc. (DBA CompuBooks Business Services), a 20 year old firm in Toronto, Canada. Esther holds QuickBooks certifications in the United States, Canada and the United Kingdom. She works with clients around the world on QuickBooks setup, conversion, training, troubleshooting and customization services to end users, as well as training for accounting professionals. When asked about her mission/purpose statement, she said, "Our mission is to enable businesses to harness the power of QuickBooks to grow and be successful." Esther was recognized as Insightful Accountant's "International ProAdvisor of the Year" in 2015, and consistently has been recognized as a member of IA's "Top 100 ProAdvisors."