How Should Practices Record Merchant Fees, Patient Financing, and HSA Payments?

Healthcare bookkeeping services record merchant fees as an operating expense, patient financing payments at the gross treatment amount with the financing discount as a separate expense line, and HSA or FSA card payments the same way as any other debit card receipt. Recording any of the three incorrectly produces a revenue figure that cannot be reconciled to the bank statement.

A practice ends the month with four payment types in the bank feed: a Stripe net deposit, a CareCredit settlement, an HSA card batch, and a Sunbit financing payout. All four arrive as different dollar amounts from different sources on different days. The bookkeeper codes all four to patient revenue and moves on. At month-end, revenue is understated because the financing discounts were not removed, and the merchant fee expense is invisible because it was netted out of revenue instead of posted separately. CoCountant is a controller-led bookkeeping and accounting service. Payment method recording is one of the close steps where a small habit error compounds across every billing period.

This guide is general information, not tax, legal, or financial advice. Confirm your treatment with your CPA.

Credit Card Processing Fees for Medical Practices: Three Ways the Money Arrives

Credit card processing fees for medical practices take three forms depending on the processor.

Net settlement. The processor deposits the collected amount minus its fees. The bank feed shows a deposit smaller than the day’s patient collections. This is the most common structure for standard credit card processing (Stripe, Square, most integrated payment terminals).

Gross settlement with separate fee debit. The processor deposits the full collected amount and withdraws the fee separately, often on a monthly schedule. The bank feed shows two transactions: a large credit and a smaller debit.

Blended or tiered monthly statement. The processor deposits net amounts daily and sends a single monthly statement summarizing all fees and transactions. Reconciling this requires matching the monthly statement to the bank deposits.

The accounting treatment should be the same in all three cases: record gross patient revenue and record the fee as a separate expense. The only difference is the timing of when each entry hits the books.

Recording Credit Card Processing Fees: The Journal Entries

Daily net-settlement entry (Stripe, Square, most integrated terminals)

The patient is billed $500. The processor deposits $485.25 after a 2.95% blended rate fee.

At time of payment (gross-up method, accrual books):

When settlement hits the bank:

Cash-basis shortcut (used by many small practices):

Either method works as long as it is applied consistently. The gross-up method produces a more accurate revenue figure. The shortcut is simpler and common on cash-basis books.

Monthly gross settlement with a separate fee debit

When the processor deposits the full $500 and debits $14.75 later in the month:

Then, when the fee is debited:

What account to use

“Merchant fees” or “credit card processing fees” works as the account name. Use one account for all processor fees rather than separate accounts for each processor. The monthly processor statement provides the detail if you need to analyze by vendor.

Under IRC Section 162, processing fees are ordinary and necessary business expenses. They are deductible in full in the period incurred. Confirm your deductibility with your CPA.

Patient Financing Payments: How CareCredit, Sunbit, and Similar Programs Work in the Books

How patient financing works for the practice

With patient financing programs such as CareCredit or Sunbit, the patient applies for credit with the financing company. The practice charges the patient’s account for the full treatment amount. The financing company pays the practice, minus a merchant discount fee. The patient then repays the financing company directly according to their plan terms.

From the practice’s perspective: revenue is earned at the full treatment amount, and the financing discount is a cost of accepting that payment method, similar to a credit card fee.

Patient financing payments: the journal entries

A patient owes $2,000 for treatment. The practice submits the charge to CareCredit. CareCredit deposits $1,860 (after a 7% merchant discount, or $140).

Step 1: Record the full treatment charge (already in the PMS as patient service revenue).

Step 2: Record the CareCredit settlement:

The $140 is an expense, not a revenue reduction. The practice earned $2,000. It paid $140 to make that revenue collectable through a financing program.

Why not net the $140 against revenue? Netting understates gross revenue, which distorts gross margin, productivity tracking, and any reporting tied to production totals. It also makes the cost of the financing program invisible, which means you cannot compare it against the benefit of higher case acceptance.

Promotional financing periods and timing

Some patient financing programs offer promotional interest-free periods (for example, 18 months deferred interest). The bookkeeping for the practice does not change based on the patient’s repayment terms. The practice is paid by the financing company promptly. The patient’s repayment schedule is the financing company’s business, not the practice’s.

The practice’s job is to confirm that the CareCredit or Sunbit settlement report matches the amount deposited and matches the charges posted in the practice management system.

Reconciling the financing settlement report

Patient financing companies issue settlement reports showing each transaction, the treatment amount, the fee, and the net payment. Reconcile this report to the bank deposit and to the practice management system’s payment entries before closing the month. Differences can arise from timing (a late-month charge settling in the next period), a refund, or a chargeback.

Our guide on reconciling insurance payments and EOBs covers the reconciliation discipline that applies to financing settlements as well.

HSA and FSA Card Payments: What Is Different in the Books

How HSA and FSA card payments arrive

HSA (Health Savings Account) and FSA (Flexible Spending Account) cards are prepaid debit or credit cards funded by a tax-advantaged account. For the practice, the payment experience is nearly identical to accepting any other Visa or Mastercard. The card is run at the terminal, the processor approves it, and the deposit arrives in the bank on the processor’s normal schedule.

Nothing about recording an HSA or FSA payment changes the bookkeeping entry. The payment is patient revenue. The processing fee, if any, is a merchant fee expense. The fact that the funds came from a tax-advantaged account is the patient’s concern, not the practice’s.

What the practice does need: the right merchant category code

To accept HSA and FSA cards, the practice must be assigned a qualifying healthcare Merchant Category Code (MCC) by its payment processor. Healthcare-relevant MCCs include:

• 8011: Doctors and Physicians
• 8021: Dentists and Orthodontists
• 8099: Health Practitioners and Medical Services

A practice with an MCC in this range can accept HSA and FSA card payments without additional certification. If the MCC is outside the healthcare list, the processor needs SIGIS/IIAS certification to process HSA and FSA cards. Confirm your MCC with your payment processor. This is a processor setup question, not a bookkeeping question.

Recording an HSA or FSA payment

A patient pays a $200 copay using an HSA Visa card. The processor settles $194.10 after a 2.95% fee.

No separate HSA category is needed. The revenue is patient revenue. The fee is a merchant fee. The only optional step is adding a payment method label in QuickBooks so you can filter HSA payments separately from credit card payments if you need that data later.

FSA use-it-or-lose-it and year-end volume

FSA accounts have a use-it-or-lose-it rule under IRS rules, which drives higher patient payment volume in November and December. This is not a bookkeeping change. It is a cash flow note. FSA-heavy practices may see a seasonal increase in patient collections in Q4 that normalizes in Q1.

One Chart of Accounts for All Three

A practice accepting all three payment types needs only a few accounts to track everything cleanly.

Keep “merchant fees expense” and “patient financing discount expense” as separate accounts. A 2.95% Stripe fee and a 7% CareCredit financing discount are both costs, but they have different magnitudes and different business implications. Merging them into one account hides the true cost of each payment channel.

Medical Practice Payroll and Payment Method Bookkeeping: How They Connect

Payment method bookkeeping feeds directly into the revenue figures used for productivity-based provider compensation. If financing discounts are netted against revenue, production totals in the books are lower than production totals in the practice management system. A provider paid on a percentage-of-collections basis may be owed compensation on a higher number than the books show. Reconcile the PMS production report to the general ledger monthly, not just at the time of bonus calculation. Our recent guide on provider compensation and productivity bonuses covers how that reconciliation feeds into payroll.

Common Mistakes Practices Make

Mistake 1: Recording the net settlement as revenue instead of gross

The processor deposited $485.25 and that is what gets coded to revenue. Gross revenue should be $500 and the fee $14.75 should appear as an expense. Netting the fee understates revenue and hides the cost of processing.

Mistake 2: Booking the patient financing discount as a contra-revenue adjustment

Coding the CareCredit fee as a revenue reduction puts it in the wrong section of the income statement. It is an operating expense. Contra-revenue is for contractual adjustments (payer write-offs), not for financing program fees that the practice chose to incur.

Mistake 3: Creating a separate revenue account for HSA/FSA payments

HSA and FSA revenue belongs in the same patient service revenue account as any other patient payment. The payment method is metadata, not a different revenue type.

Mistake 4: Not reconciling the financing settlement report to the bank deposit

The settlement report and the bank deposit should match. If they do not, there is a timing issue, a fee discrepancy, or a chargeback that has not been posted.

Mistake 5: Missing the monthly fee statement for gross-settlement processors

Processors that deposit the gross amount and charge fees separately send a monthly statement. If the statement is not reconciled and the fee debit is miscoded (to a bank fee account or left unreconciled), the cost of processing is hidden or misclassified.

Mistake 6: Using one account for all financing and processing costs

A 2.95% card rate and a 7% to 8% patient financing discount are very different costs. Keep them in separate accounts so you can see what each payment channel costs the practice.

When Healthcare Bookkeeping Services Make Sense

You are likely ready for outside help when:

• Merchant fees are netted out of revenue deposits and never appear as an expense.
• The CareCredit or Sunbit settlement report does not reconcile to either the bank or the practice management system.
• Patient revenue in QuickBooks is consistently lower than production totals in the PMS.
• A financing discount was coded as a contractual adjustment, distorting the payer-write-off report.
• The monthly close does not include a step to reconcile each payment channel to its settlement report.

Where CoCountant Fits

CoCountant’s core plans are controller-led, which means a dedicated controller signs every close. At each close, we reconcile each payment channel to its settlement report: standard card processing, patient financing programs, and HSA or FSA batches each get their own line in the reconciliation. We post gross revenue and record fees as expenses so the income statement reflects how the practice actually operated.

Our bookkeeping services page explains how a close runs. For practices with significant patient financing volume, we can configure the chart of accounts during onboarding so the monthly reconciliation is consistent from period to period.

Plans start at $160 per month for Launch, with a 15 working-day close. Scale starts at $460 and Command at $1,270, both with a 10 working-day close. Plans are 12-month agreements, with a one-time onboarding fee quoted upfront. See the pricing page for current plans.

Conclusion

Merchant fees are expenses, not revenue reductions. Patient financing discounts are operating costs, posted separately from contractual adjustments. HSA and FSA payments are standard debit receipts that happen to come from a tax-advantaged account. Keeping these three straight in the chart of accounts produces a revenue figure that matches the PMS and a cost structure that is visible on the income statement. If you want help setting up the accounts, contact us.

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