Guide 04 · Cash
Deposits, merchant fees and the clearing account
Card payments are the most reliably mis-posted item in a practice's books. The batch is gross, the deposit is net, the timing is off by a day or three, and the fee is buried. A clearing account fixes all four — if it is required to return to zero.
Why gross and net is the whole problem
A patient pays $400 on a card. The practice management system records $400 of collections. The processor takes its fee and deposits $388.40 two days later. If you post the deposit as revenue, your revenue is understated by the fee, your merchant fee expense is zero, and your AR does not clear properly. If you post the batch as cash, your cash does not agree to the bank on any day of the month.
Both halves are right; they just are not the same number, and they do not happen on the same day. The clearing account is where the difference legitimately lives for the two or three days it exists.
Posting the net deposit straight to revenue. It is fast, it reconciles to the bank, and it quietly understates both revenue and expenses by the full year of processing fees — which also means nobody can see what the processor is charging.
The clearing account mechanism
One asset account per processor. Batches go in at gross, deposits and fees come out, and the balance at any moment is money earned but not yet in the bank.
Dr Merchant clearing 400.00
Cr Patient AR 400.00
On the deposit date — from the bank statement
Dr Cash 388.40
Dr Merchant fee expense 11.60
Cr Merchant clearing 400.00
Clearing balance at month end = batches posted, not yet deposited.
Which must equal the last day or two of batches. Nothing else.
Note what this buys you beyond a tie: the fee is now a visible expense line you can trend, and revenue is recorded at gross, which is what it is. You cannot negotiate a processing rate you cannot measure.
Some processors deposit gross and debit fees once a month instead. The mechanism is the same, but the fee entry moves to the monthly debit date and the clearing account should return to zero on the deposit rather than being reduced by a fee. Confirm which model each processor uses before you build the template — a group with three processors often has both.
The monthly proof
The whole reconciliation is three populations that have to agree: what the practice management system says was collected, what the processor says it settled, and what the bank says it deposited.
| Line | Source | Amount |
|---|---|---|
| Opening clearing balance | Prior month proof | 18,402.55 |
| Card batches posted in month, gross | PMS batch report | 612,880.10 |
| Deposits received per bank, net | Bank statement | (608,119.42) |
| Processing fees charged | Processor statement | (17,944.23) |
| Chargebacks and reversals | Processor statement | (1,340.00) |
| Closing clearing balance | 3,879.00 | |
| Last two days' batches, undeposited | PMS batch report, 30th–31st | 3,879.00 |
| Unexplained | Must be zero | 0.00 |
The three sources matter. Reconciling the PMS to the bank alone cannot separate a fee from a missing batch, because both look like "less cash than expected." The processor statement is the document that splits them, and it is the one most often not pulled.
Reading a residual balance
A clearing balance that does not equal the last days' batches is diagnostic. The pattern tells you what happened:
Balance grows every month
Batches are posting but deposits are not being matched out, or the fee entry is missing entirely. The clearing account is slowly becoming an understated expense account. Check whether anyone has ever posted a fee entry.
Balance goes negative
Deposits are being posted without the corresponding batch — often because a batch was posted to revenue directly, bypassing clearing. Something is counted twice somewhere.
Balance swings wildly
Batch dates in the PMS do not reflect when batches actually closed, so the cut-off is arbitrary. Fix the batch-closing routine before trying to fix the account.
Small stubborn residual
Usually a chargeback, a partial refund, or an interchange adjustment that was netted into a deposit without a matching entry. Small, but it will sit there for years if nobody looks at the processor statement.
A single clearing account shared across two or three processors cannot be reconciled, because you cannot tell whose timing difference you are looking at. Separate accounts cost nothing and make each one a two-minute check.
What the fee line is actually telling you
Once fees are a real expense line rather than a reduction of revenue, they become manageable. The effective rate — total fees divided by total gross card volume — is the number to trend, by location and by month.
A rate that drifts upward while your quoted rate has not changed usually means the mix changed, not the pricing: more keyed-in transactions, more corporate or rewards cards, or transactions failing to qualify for the rate tier the quote assumed. That is a conversation with the processor you can only have with the data in front of you.
Compare locations, too. Two locations on the same contract with materially different effective rates usually differ in how payments are taken at the front desk — card present versus keyed, or deposits taken over the phone. That is an operational fix, not a pricing one, and it is often worth more than a renegotiation.
Monthly checklist
- Pull all three sources: PMS batch report, processor statement, bank statement
- Clearing account proof completed and residual explained, per processor
- Fee entry posted in the correct month — fees follow the deposit, not the batch
- Chargebacks and reversals identified and posted, not absorbed into the residual
- Effective rate calculated and compared with prior month, by location
- Any clearing balance older than three business days investigated, not carried
Why this one matters more than it looks. Card volume is usually a practice's largest cash inflow, and the clearing account is the only place where production, settlement and cash can be proven to agree. When this account is clean, most of the day-two close is already done.