You have started preparing for year-end. You’ve been reading our weekly articles, and performance reviews are done (or scheduled!). Now what? It’s time to dig deep into your receivables and payables. This is daunting for an insurance agency that processes agency bill invoices, but it is an important part of your month end and year end process.
Insurance agencies, for the most part, have only one type of A/R (receivables), but two types of A/P (payables). Some agencies do have commission receivables from direct bill carriers, but these are not common. This adds some complexity to how you review your data, but we break it down below to make it easier.
Accounts Receivables (A/R, receivables)
A/R for an insurance agency is driven by what an insured owes the agency: agency bill invoices, direct bill advances, agency fee invoices, etc. Anything that is due from an insured should be logged into your agency management system (if equipped with an accounting module), or your accounting platform (if your AMS does not handle any accounting transactions), or both. .
But, where to start? Run an aged receivables report and look for discrepancies. Here are some common discrepancies, and their root cause:
- Do customers have a zero balance, but show open invoices items? Payments need to be applied to invoices.
- Do they owe double what you expected? An invoice was duplicated.
- Do they have a credit balance you didn’t expect? A policy hasn’t been invoiced, or an agency bill return premium was credited to the insured’s account instead of the company payable account.
Making your A/R corrections first has a direct impact on your A/P reports and will make that clean up easier!
Accounts Payable (A/P, payables)
While A/R generally is only driven by one factor–an insured’s invoice–an agency’s A/P generally has two types of items: trust related (what you owe an insurance company or broker on behalf of insured), and non-trust related (ie credit card balances, payroll liabilities, and long-term notes).
Reviewing your A/R first will clean up most discrepancies you will find on your A/P report for trust-related items. However, there may still be some issues you need to address. Here are some common discrepancies for your company payables, and their root cause:
? Does the company payable account have a negative balance? Return premiums were recorded in the wrong place when deposited ( ie insured’s account, wrong company payable account)
? Does the company payable account have an unexpected balance? Disbursements to the companies may have been recorded incorrectly (ie wrong company payable account or allocated to an expense account).
Bookkeeper’s Tip: Are you using a non-integrated AMS that exports your data to an accounting platform? Make sure you are running reports in BOTH systems. You may find that some data was exported twice, and data is duplicated in your accounting system.
For non-trust payables, here are some additional items to review:
🔎 Does your payroll liability account have a balance? Double check your disbursements for taxes and retirement contributions. They may have been allocated to an expense account in lieu of the payroll liability account.
🔎 Do your loan balances match your loan statements? If not, take a look at how your loan principal and interest payments were broken out and ensure they were done properly.
Once these reviews are done the first time, keeping up with them will be much easier. However, it is an important step in preparing for your year end and making sure you enter 2024 with clean records!
About Crystal Temple
Crystal has spent nearly two decades focused exclusively on accounting and bookkeeping for insurance brokers. She has founded multiple bookkeeping groups, one of which was acquired by a prominent AMS provider. Crystal has also served as a controller of an agency group that acquired over 50 agencies in a two-year timeframe. She is the co-founder of a startup called Ricono, building a platform to address some of the technology deficiencies brokers face when trying to measure and manage their financial operations.
Crystal has spent nearly two decades focused exclusively on accounting and bookkeeping for insurance brokers. She has founded multiple bookkeeping groups, one of which was acquired by a prominent AMS provider. Crystal has also served as a controller of an agency group that acquired over 50 agencies in a two-year timeframe.
She is the co-founder of a startup called Ricono, building a platform to address some of the technology deficiencies brokers face when trying to measure and manage their financial operations.
