Guide
Rebates and consumer financing: what actually hits your books
A financed job at the same ticket price is a smaller job. Most books never show it.
Reviewed by Darren Lim, US CPALicence CPA.742536027 min read
Two installs, both quoted at $11,000. One is paid by cheque. The other is financed and came with a utility rebate.
Most HVAC books record both as $11,000 of revenue. They are not the same job, and the difference is entirely margin.
Consumer financing: the dealer fee is a discount
When a customer finances through your lender, the customer owes the full amount and you receive less. The lender keeps a dealer fee — the cost of the promotional rate the customer was offered.
That fee is not a bank charge in the ordinary sense. It is a discount you granted in order to close the job, and it belongs against the job that carried it.
Post it to general bank fees and two things go wrong. Your revenue overstates what you actually collected, and the cost sits in overhead where no job costing will ever find it. Every financed job then looks more profitable than it was, and the more of them you sell the further your reported margin drifts from reality.
The correct treatment is straightforward: record the sale at the contract value, record the dealer fee as a cost of that job, and the difference is what you banked.
The trap: a 0% promotional offer usually carries the highest dealer fee. The rate the customer sees and the fee you pay move in opposite directions. If your sales process leans on 0% because it closes, you are running a growing share of work at a materially lower margin — and if that share is rising while your reported margin looks flat, the margin is not flat. It is falling, and the fee is absorbing the difference in a place nobody looks.
Rebates: whose money is it
Rebates are messier because they come in two shapes and only one of them is yours.
The customer's rebate, which you handle for them. A utility programme pays the homeowner, you do the paperwork, and often you discount the invoice up front and collect from the utility yourself. That is not your revenue. You are collecting on the customer's behalf, and treating it as income inflates your top line with money you never earned.
A manufacturer credit that belongs to you. Volume rebates, co-op accruals, spiffs on equipment. This is genuinely yours — but it reduces the cost of the equipment rather than adding to revenue. It belongs against cost of goods sold, in the period it relates to.
Recording either one as ordinary sales revenue produces a top line that looks healthy and a gross margin that quietly deteriorates, because the cost side is intact and the revenue side is padded.
Why it matters more than the amounts suggest
These figures look small next to an $11,000 install. The problem is that they are systematic.
They apply to a category of jobs — the financed ones, the rebate-eligible ones — so they do not distort your numbers randomly. They distort them in one direction, on one type of work, consistently. That is exactly the kind of error that survives for years, because nothing about it looks wrong on any individual invoice.
If financed jobs are 30% of your installs and each carries a dealer fee, your install margin is not what your P&L says. And install versus service is a comparison worth getting right — it is one of the few numbers that changes how an HVAC business is run.
The accounts you need
Four lines, added once:
- Financing and dealer fees — a direct cost, in the 5000 series, not a bank charge in overhead
- Customer rebates collected — a liability while you hold money that belongs to the customer or is owed to them as a discount
- Manufacturer rebates and co-op — against cost of goods sold, not revenue
- Discounts and allowances — contra-revenue, so the gap between quoted and collected is visible rather than absorbed
A contractor's chart of accounts has slots for all four.
The one check worth running this month
Pull last month's installs. For each, put the contract value next to what actually landed in the bank for it.
If those two columns differ by more than a rounding error and nothing in your books explains the gap, you have found it. The size of that gap, multiplied by the number of financed jobs you sell in a year, is what this is worth fixing.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
Financing fees coded against the job that carried them, rebates split between customer discount and money you actually receive, and margin reported after both — so a financed install and a cash install can be compared honestly.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
If financed jobs are a growing share of your work and your margin looks flat, it is not flat — it is falling and the dealer fee is hiding it. One month of properly coded books shows you which way it is moving.