YNAB Podcast Episode 81: Handling Accounts Receivable in YNAB

Editor’s Note: Jesse recorded this podcast episode a while back, but the transcript coincides nicely with a blog post he wrote recently.

Hello YNABers. My name is Jesse Mecham and this is podcast number 81 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I want to go totally off the rails and talk about YNAB for business. I wrote a post back on the blog a year ago, maybe more, talking about how we moved YNAB the business to YNAB the software and how awesome it’s been. It’s helped us grow faster because it’s allowed me to be more aggressive with reinvesting where I was always, by nature, quite conservative – too conservative. And in that post I mentioned a few constraints, a few things you should be aware of that YNAB couldn’t or wouldn’t handle, at least not very gracefully: inventory, accounts receivable, accounts payable, banks that have very strange requirements on what they want your P&L to look like.

In the meantime, YNAB 4 launched and we now have an awesome P&L that any bank would take, for sure. We now also have a balance sheet that any bank would take, so that one doesn’t really apply. The accounts receivable would be needed for service businesses, doctors’ offices, chiropractors, therapists, dentists, orthodontists; any time where you’re providing a service and you have to deal with your money – designers, contractors. So it’s a fairly large group of people. Your businesses should still be rather simple, but YNAB can handle the accounts receivable pretty smoothly, actually. And it would probably make more sense to you than doing it in traditional accounting software where you have to worry about the double entry side of things.

So, here’s how I would do it if YNAB had accounts receivable. I would set up an accounts receivable account. It would be off-budget because accounts receivable means you did not receive any cash – it’s an account that is in waiting. You’re waiting for the cash. If you’d gotten the cash it wouldn’t be there. So, it’s in an off-budget account – budget only works with cash or credit cards, things like that, where cash actually changes hands. So, off-budget accounts receivable account. And let’s say I have John who pays me for my bookkeeping services and he owes me money for it – I provided them in advance. So, I record an inflow to my accounts receivable of $500 and the payee is John, and that’s it. It doesn’t affect the budget at all because there’s no cash, but my accounts receivable account just increased by $500. Then I have Mark who owes me money and Chance that owes me money, and they all… I send them an invoice and record the receivable inflow – not category, obviously, because it’s an off-budget account – and we’re good to go.

Then, what happens when I actually get the cash? Well, the cash comes from my… it lands in my checking account. So let’s say that John pays me. I would record that inflow in my checking accounts, just like normal, but I need to make sure that I record the outflow from the off-budget account because that accounts receivable will go down by the same amount as the cash that I received. So, what I would do is I would record the inflow from the… let’s say the inflow of cash – I should have written this out – in my checking account, and then I would do a transfer of the payee, I would say transfer off-budget or whatever – accounts receivable, whatever the name is – so that there would be an off-setting outflow in that accounts receivable account. So it goes down and then we’re done.

The only way currently in my implementation that I did quite quickly that you could be able to track who owed you what in an easy way would be to record in a memo field the client name, for instance. Then you could do a search on the memo in your accounts receivable account, and we naturally show you the search total. So you have inflow, inflow, inflow, someone that’s gotten a receivable that you’ve got on your books, and then it’s increased and increased, and then they pay you, and then they have another one and they pay you again – those would all be totaled. The inflows and outflows are summed together when you’re searching. So I would just search for “John” in the memo field and it would show me every transaction with John in the memo. And then it would give me the search total and tell me what John still owed me, and I could call John and be like, “Dude, what the heck? You owe me my money.”

So, that’s how you track accounts receivable. It’s actually not very different at all from what you would do in QuickBooks or Peachtree or other standard accounting software that follows general accounting principles. As a matter of fact, any auditor would be fine with that. You just record the inflow in your accounts receivable off-budget account, and then you record the transfer out of that and into your checking account. And that cash that you receive you actually budget.

And that’s where YNAB for your business would really start to shine, because then you could see that you’re being too crazy with your money and pull back, or maybe that you’re being too conservative and plow forward. Either way, YNAB would give you the business insight that you needed to grow at the pace that you could sustain, to market effectively, and to deploy your resources in a way that would make you, in the end, more profitable and help you build your company even bigger, better and all that.

So, that’s how I would handle accounts receivable in YNAB, and it would work really, really well. If you have any questions, especially if you’re a business owner where you’d actually want to implement this, just shoot me an email – [email protected] – and we can talk about it.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.