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NDBLLC
Level 1

Invoicing a vendor in Quickbooks Desktop

I need to invoice a subcontractor (vendor) for repairs my company completed on their behalf. They are currently setup as a vendor in QB desktop (contractor edition) since we typically pay them for the service they provide, but in this situation they're paying us for repairing damage they caused. Can I invoice them as a vendor or do I have to set them up as a customer to send an invoice and receive payment? Thanks

2 Comments 2
JessT
Moderator

Invoicing a vendor in Quickbooks Desktop

Hi NDBLLC!

 

Thank you for getting help with collecting payments from your contractor. I'm happy to guide you with this.

 

Yes, you're right. You'll want to add the contractor as a customer and issue them an invoice. Just put a slight difference in the name, like putting a middle name or adding the word "customer" to it to indicate that it's their customer's profile because QuickBooks doesn't allow identical names. Then, just record payments like the usual way to record payments from your other customers.

 

Another way of recording payments is to offset the balances of the customer profile to the vendor profile vice versa. Then, just pay or receive a payment for the remaining amount, whichever has an outstanding balance afterward. It's like a barter system. This is a bit tedious but a common practice between businesses that exchange services or products.

 

For example, if they bill you $200, and you invoice them $100 for your service, here's what you can do:

 

First, create a barter/wash/clearing account. It's a Bank type of account and is used to pass the balance from Accounts Receivable ($100) to offset the money you owe. You only need to create it once, it can be used in your future barter transactions.

 

  1. From the Lists menu, select Chart of Accounts.
  2. Right click anywhere in the Chart of Accounts, then select New.
  3. In the Add New Account window, select the Bank radio button.
  4. Select Continue.
  5. In the Account Name field, enter Clearing AccountBarter Account or Wash Account.
  6. Select Save & Close. Do NOT enter an opening balance.

 

Second, move $100 from Accounts Receivable to the Barter account via journal entry. This in effect will also create credits to the customer's profile amounting to $100, which can be used to pay their invoice. Obviously, the goal is to zero out the customer's balance and to offset the money in the vendor's balance at the same time.

 

  1. From the Company menu, select Make General Journal Entries.
  2. On the first line, select barter account and enter $100 in the Debit field.
  3. On the second line, select the Accounts Receivable account, enter $100 in the Credit field, and tag the customer's name/profile in the name field. Tagging the name is a must so QuickBooks will know who's $100 are you transferring out from the Accounts Receivable account.
  4. Click Save & Close.

 

Third, open the invoice from the customer's profile and click Receive Payment. Then, use the credits created in the Second set of steps to be applied as a payment to the invoice.

 

Fourth, pay the bills of the vendor using the money in the barter account, or call this offset the vendor's balance, if you would.

 

  1. Open the vendor's bill and click Pay Bill.
  2. Select the bills to be paid.
  3. Change the Method to check or savings, depending on what account your barter is.
  4. In the Account field, choose the barter account.
  5. Click Pay Selected Bills.

 

You can check out this article for your additional reference: Set up a clearing account. The concept is you're able to move an amount from Accounts Receivable or Accounts Payable to the barter account to offset the customer or vendor's balance whichever is higher. It's done this way because you can't just directly offset balances between A/R and A/P for some accounting-principle reasons.

 

Let me know if you need more help with invoicing your vendor. Take care and enjoy the rest of the day!

NDBLLC
Level 1

Invoicing a vendor in Quickbooks Desktop

Super helpful response. Thanks JessT!

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