YNAB BLOG

Goodbye Quickbooks: Use YNAB to Track Accounts Receivable REALLY Easily

You can track anything in YNAB, really.

Taylor, our lead developer, uses YNAB to track household chores:

If you’re  a small business owner, freelancer, etc. you could certainly use YNAB to track your Accounts Receivable.  Accounts Receivable, for those of you that didn’t spend your early 20’s sitting in accounting classes, is just a fancy way of saying, “Money that people owe me.”

I’m going to pretend that I’m a designer, and I have three clients: Acer, Broncos (the Denver, winning kind), and Chrysler.

First, I set up my Accounts Receivable account.  It’s Off Budget because I don’t spend from it.

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Oh, and I’ve set up a checking account, which we’ll need once we collect money.

I do some work for Acer, and send them an invoice for $1,000.  No cash has changed hands at this point, so I obviously don’t mess with my checking account.  But my transaction in the Accounts Receivable account might look like this:

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Let’s invoice for some more work accomplished:

  • Broncos on 1/20 for $2,000.
  • Chrysler on 1/22 for $800.
  • Acer on 1/25 for $1,200.
  • Acer again on 1/31 for $1,500.
  • Broncos on 2/2 for $2,300.

These transactions would look like this:

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At this point, you’ve done a lot of work, but haven’t collected any money. That’s no good.  But you’re not  worried.  You can look at a few different points of data to see how things are going.

For instance, how much are you owed in total? That one’s easy. You look at your Accounts Receivable account balance:

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But wait, how much do the Broncos owe you? A payee search gets you there, looking specifically at the search total at the bottom:

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Chrysler inquires about an invoice: “We lost it. But want to cut you a check today. What was the amount owed on invoice 0003?”

Easy. We’ll search the memo field for Invoice: 0003 and pull it up:

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This is all well and good. But thank heavens, Acer actually paid us some of what they owe us.  Today we received a check for $2,200.  On the check stub, they specify that the $2,200 is payment for Invoices 0001 and 0004.

We deposit the check.  At this point, this is the first time we’re dealing with actual cash, so this is the first time we’re thinking about The Budget.

We record the inflow in our checking account:

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A few key points to remember:

  • This is a “transfer” because we’re transforming money owed to us into cash in our checking account.  It goes from being a receivable, to being money in the bank to be budgeted accordingly.
  • The “category” could honestly be anything. You could record it to a specific type of work you did (Design: Logo, or Design: Branding), you could have each of your clients be a category if you wanted to track it in such a granular way (that could get messy), or you could just use the generic Income category.
  • The “memo” field is a great place to record which Invoices were paid.
  • Obviously the inflow is for the amount of the check received from Acer.

The flip side of the transfer transaction looks like this:

2014-01-14_1143

Not much to report here. It’s a “transfer” out of the Accounts Receivable account, and into the Checking account.

You can see that our Checking account balance increased to $2,200 (the amount of the check deposited), and our Accounts Receivable balance decreased by $2,200, down to $6,600:

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I f you wanted to be particularly careful on tracking specific invoices paid, you could flag the specific transactions in the register of the Accounts Receivable account. I picked red for no good reason:

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Marking paid invoices with a flag allows you to become a Search Ninja, and answer the question that Acer sends you in an email the following day: “Can you please give us the invoice numbers for any remaining amounts owed?”

That’s easy. Search for “Payee: Acer, Flag: None”

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If they asked you to send them a list of all invoices paid for the year, you’d change the search only slightly: “Payee: Acer, Flag: Red”

As you can see, the sky’s the limit on exactly how you track receivables in YNAB, but is it doable? Absolutely.  Does it mean you can ditch Quickbooks? Absolutely.  Quickbooks is, for most small business owners, a quagmire of confusion, feature bloat, and in 95% of small business use-cases, pure overkill.

Think about this: the joy of using YNAB to plan and allocate your resources according to the vision you have for your small business and being able to collect what you’re owed. Perfect!

26 Responses to “Goodbye Quickbooks: Use YNAB to Track Accounts Receivable REALLY Easily”

  1. erinynabeducation

    I actually have a small side business where I receive purchase orders from schools and I handle it exactly as Jesse describes here. When I receive a PO, I enter it in accounts receivable (which is off budget) and move it to the business checking account once payment arrives. At that point, I budget, but not a moment before. :)

    This really helped me keep track of POs which had been a real pain before. I can see at a glance which POs haven’t been paid and mark in the memo field when I sent the invoice. Super helpful.

  2. Mark DeNio

    I suppose this is a dumb question but could I reverse the methodology to keep track of medical bills I owe? Create an off-budget account for each bill and have the starting balance be negative. I could use the pre-built Doctor, Dentist category because I don’t care about granularity.

    I have a lot of trouble keeping track of what bills I owe that aren’t regularly occurring ones (like groceries, gas, credit cards, etc.).

    • MrMcLargeHuge

      Reversing it would be akin to having an Accounts Payable, so it should work just fine.

      • Michael

        I do this. Make sure your Accounts Payable is an on-budget account.

  3. Terri C

    Mark – Sounds doable to me. Just a note, though, if the account is off-budget you don’t have to worry about categories until you actually pay the bill. You could use flags to designate type, or put in a memo (you could use hashtags for quick searches #doctor, etc.)

    • Mark DeNio

      I apologize. That’s what I meant. When I pay the bill I could just use the doctor category because I don’t need categories for each specific bill. Thank you for clarifying and for the encouragement!

  4. Dez

    Thank you Jesse! I never thought about doing it like this! Some time ago i lent some money to a friend and i created an off-budget account starting with the negative amount (i.e. 1000€). But everytime he gives me back some money, let’s say 100€, i have to put 2 transaction: one in my budgeted account and one in my off-budget (to track how much he owes me).
    I can’t wait to go home and reverse this process and adopt your method: it makes SO MUCH MORE sense!

  5. LeiraHoward

    It would be nice if YNAB added the ability to create invoices for small businesses, along with some of the other features (payroll, tax calculation) so that it could be a TRUE substitute for Quickbooks. There are a few things that QB does that YNAB can’t quite replace (yet).

    • erinynabeducation

      I’ll let Jesse reply on the tax calculation piece, but I run payroll in YNAB. I have a master category for payroll and sub categories for who I pay. I can see a report of who’s been paid in the income and expense report.

      When I pay myself, it’s an outflow from the business budget categorized to payroll. Then I open the personal budget and enter it as income.

      I’ve never used Quickbooks, so I admit that you may be wanting something more automatic, but it does work for me.

    • Lyz K.

      I am a QuickBooks ProAdvisor and honestly, I think it would open way too many cans o’ worms if YNAB were to try and compete with QuickBooks. Unless they start a whole new Business YNAB. The reason I love YNAB and use it personally is because it is clean, simple, and NOT QuickBooks. I love them both equally, but they are definitely two different animals for two different purposes.

      • jesse

        Hy Lyz,

        They are certainly two different animals. YNAB would work for a lot of small businesses, where Quickbooks offers way more than they would ever need. I’m thinking mainly cash businesses, services given, etc.

        I’ve been running YNAB with YNAB for a few years now, kicking Quickbooks to the curb, and…it’s been quite doable and wonderful ;) I’m biased!

  6. Nate

    I’d love to see a business version of YNAB. I use QB and YNAB side by side for my small business using the accounts receivable method. It takes some extra time but it’s worth seeing how the business stands rather than just guessing based on the bank balance.
    I wish I could lose QB but until YNAB can handle time cards, vendors and invoicing I suppose I’m stuck with the horrible thing.

  7. Randall Huleva

    This is an excellent idea for the truly SMALL business…an owner and perhaps a few employees. While Intuit markets QB as being a “small business”, easy-to-use accounting program, they have really misled many buyers. While QB isn’t difficult to use for someone with a basic accounting or bookkeeping background, it isn’t at all easy or intuitive to use for someone who doesn’t have that background. Far too many small businesses who don’t need to power of QB end up buying it and trying to keep their own books – only to get it totally screwed up and have to hire a QB consultant to come in and straighten things out for them. This becomes a pretty expensive proposition. The YNAB method is extremely simple and almost impossible to mess up if you are already familiar with using the software. I’d highly recommend this method unless you have a basic accounting background.

    • Beth Anne

      Totally agree..I worked for a lady that used QB basically b/c her CPA told her she needed to use QB to track her expenses. I got put in charge of it and it was a MESS!! After my first tax season she started asking me all these questions about QB I wasn’t doing because I only did what the former person taught me. So I took it upon myself to take a class and started from scratch and fixed it..I still wonder if it’s still a mess or not ha

  8. MGG

    Many thank yous Jesse! You sent this post at exactly the right time. We really needed something like this. I can’t stand using Quickbooks and you just gave me a wonderful workaround and better way to track our receivables. We’ll now only use it to create invoices and store our customer information.

    • MGG

      Just finished adding all of our Account Receivables to YNAB yesterday. I encountered what L Lessa mentioned and tried her solution, but it doesn’t work for us. We use Square to receive credit card payments and the percentage they charge is awkward to include in our AR account since our business checking account shows the amount AFTER the percentage reduction. For example for a $100 invoice payment our checking will show $97.25 deposit (Square takes 2.75% or $2.75 ). To avoid the headache, I simply record all accounts payables within our AR account and the deposits from our accounts payables into our checking account in YNAB. It’s double-entry, but it’s simple, clear, and not too time-consuming.

      • L Lessa

        I have the same issue with fees for online payments. Since you’ll already be splitting the transfer transaction, the workaround is easy. For a $100 credit card sale, enter in your checking:

        Transaction total –
        Payee: Client Name, category: Split, inflow: 97.25
        Split line 1 –
        Transfer: AR, category: Income, inflow: 100.00
        Split line 2 –
        category: Transaction Fees, **outflow**: 2.75

        Fees go to their own category and you’ll have to budget for them, 2.75 in this case.

      • L Lessa

        The way you do it is fine, too. Since you never really see that fee money, you could add a separate transaction in your off-budget AR account with payee: Square and an outflow of 2.75.

      • MGG

        Thank you so much for responding! I plan on at least trying your suggestions to see which ones I prefer. Thank you again.

  9. L Lessa

    Hey Jesse,

    I may have found a quirk in reporting when doing a straight transfer of the money from Accounts Receivable (off-budget) to checking (budget).

    Using your exact method for AR, the Reports > Income vs. expenses screen does not show each client/payer’s totals. In fact, the AR income seems to be nowhere in that report (?) because it does not allow for including off-budget accounts.

    Workaround: when I get paid
    1) go to budget checking account screen
    2) Add a new transaction > enter client’s name as Payee (“Acer”), category: Split, memo: invoice #, total inflow = payment received
    3) On the first line of the split > transfer: Accounts Receivable, category: Income for January, inflow = same as payment received

    Now I get each client as a separate income source on the report. Sweet!

    • MGG

      Hi L Lessa. I tried your solution, but it doesn’t work for us. You can see my previous post on this page to see why. Instead, I just export my AR transactions into Excel and create charts from there to manipulate and view the data.

  10. Matt Vanderpol

    This is a great idea! Nice to see it at the start of the year so I can easily adopt it for 2014.

    One comment – rather than using Flags for paid invoices, wouldn’t it make more sense to simply mark them as cleared? You can still search on “Is: Uncleared” to find open invoices and semantically it seems to carry more inherent meaning that the flag.

  11. Kevin

    I do this but just labeled it “reimbursements.” What would YNAB think of adding a feature to link an income transaction with an outflow transaction? This way I could see which transactions I have been reimbursed for.

  12. Randall Huleva

    Hi Jesse,

    I agree with Lyz on this point.

    If you ever should decide to compete with Intuit in the small business accounting market, do it by building a new program from the ground up.

    In my opinion, the thing that makes YNAB so incredibly successful and easy to use is it’s very simple interface. That combined with the 4 Rule philosophy allows the users to very easily manipulate their budget data without wading through features that make it overly complicated or impossible.

    Prior to YNAB, I tried many different budgeting approaches…pencil/paper, Quicken, Mint.com, EEBA, and others, but I never had budgeting success until I found the YNAB zero dollar budget system and learned how to easily “roll with the punches”.

    Honestly, I had nearly given up on EVER finding a budget system that would really work for me. I started using YNAB with the beginning of the new year and I am very happy to say that this is the FIRST MONTH OF MY LIFETIME (and I am 54) that I am going to finish a month in the black…all thanks to YNAB and following the rules.

    I think it’s great if users can find ways to adapt it to work for their other needs, but please don’t change this wonderful program and clutter it up with a bunch of features that budgeters do not need.

    Like you, I am a trained accountant. I use QB for some clients and it is very good at what it does, however I agree that a small, cash only business really doesn’t need the robust power of QB.

    If you want to create another small business accounting program to serve that niche market, that’s outstanding. But please don’t try to make YNAB a “jack of all trades”.

    My wife tells me I love YNAB more than her! Well, that obviously isn’t true. However beyond a doubt YNAB is the one “killer app” on my computer and our phones that I would not want to live without!

  13. JTL

    What about debits and credits? Haha. I just read your bio and think it’s cool that you have a MAcc. I recently went back to school to pursue a CPA/MAcc and have been enjoying the learning experience. I may write in soon because I’ve used YNAB for 3 years (off and on) and finally figured out how to use the budget, instead of just expense tracking; ONLY BUDGET WHAT YOU HAVE! I was using estimates and my cash never caught up to my estimates so I was always in the red. I have had a month of doing it right and cut restaurants close to half about 300 dollars. We will see where it goes from here.

  14. violapallen86

    That was a good information. But please throw some light on how YNAB is better than XERO?

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