A customers, in lieu of paying me, paid directly one of my vendors from whom I purchase materials. How do I account for this payment since its not income?

Let me guide you on how to record the payment, nate34.

Entering it as a billable expense lets you record and track expenses so your customers can reimburse them when they receive their invoices. To start, you can turn on the feature. Follow the steps provided below: 

1. Go to the Gear icon ⚙, then select Account and settings.
2. Go to the Expenses tab.
3. From the Bills and expenses section, select Edit ✎.
4. Turn on the following:
   • Show Items table on expense and purchase forms
   • Track expenses and items by customer.
   • Make expenses and items billable.
5. (Optional) Set up the following:
   • Markup rate
   • Billable expense tracking
   • Sales tax charge
6. Bill payment terms.
7. Click Save.

Then, enter a billable expense. I've outlined the steps below:

1. Select + New.
2. Select the transaction (Bill, Expense, or Check) you want to create.
3. Select the payee.
4. In the Category column, select the expense account for the transaction.
5. Enter the description and amount of the expense, then select the Billable checkbox.
6. In the Customer column, select the customer you want to bill for this expense.
7. (Optional) Enter or make sure the markup % is correct, then select the Tax checkbox or choose a tax agency if you want to charge tax.
8. Click Save and close.

Once done, add the billable expense to an invoice. Here's how: 

1. Select + New.
2. Select Invoice.
3. In the Customer ▼ dropdown menu, select the customer you created a billable expense for. This opens the Add to invoice window.
4. Select Add on the billable expense you want to charge to your customer.
5. Click Save and close.

Furthermore, QuickBooks download automatically these payments or transactions. Then, tries to match them with those you've already entered into QuickBooks. Learn from this article for more information: Categorize and Match Online Bank Transactions in QuickBooks Online.

Keep in touch if you have any questions about entering your transactions. I'll be right here to help. 

Thanks for the help, I’ll give this a try in the am. I know i have this feature turned on because i always get the prompt to “add to invoice” when I’m creating a new invoice. I’m hoping that i can just edit the existing bills, clicking the box to make it a billable expense. I’ll let you know how it goes. Thanks!

I am confused by your previous response and am working on the same type of process here. I have an invoice in the system out to MY client for $105,000 which involves a lot of different remodeling work. I ordered appliances from my supplier for $4333 and entered a bill to pay the appliance store. The client called and paid direct to the supplier because I choose not to take credit cards- whatever the reason. How do I now apply $4333 to the clients invoice as well as pay the vendor invoice since the client paid them directly? I want to have record of the vendor invoice in my system as well as the appliance cost in my clients invoice due to me. 

Thank you for following this thread, randi.

We'll have to write a check to record the amount paid by your vendor. I'm here to make sure you can complete this task in just a few clicks.

Before we proceed, let's create a clearing account and use it to record the entry. You can go over this article for detailed instructions: Set up a clearing account.

Once done, follow the steps to write a check. Here's how:

1. In your company, head to the New menu in the upper left and choose Check under Vendors. 
2. On the transaction page, click the Payee drop-down and select the supplier's name. 
3. Press the Bank Account drop-down and choose the clearing account. 
4. Go to the Category details section and enter Accounts Receivable in the Category column. 
5. Type -$4,333.00 in the Amount field and input the customer's name in the Customer/Project field.
6. In the second line, enter Accounts Payable in the Category column and type $4,333.00 in the Amount column.
7. Click Save and close.  

I've included an article that covers everything you need to know about entering a check and printing one: Create and record checks in QuickBooks Online.

These resources also include a list of topics that will show you how to manage both supplier-related activities and customer transactions:

• Expenses and vendors
• Topics about your company's income and customers
• Invoices and payments

Fill me in if you have other QuickBooks concerns or additional questions on how to track your clients' and suppliers' entries. I'll get back and make sure to answer them for you. 

thank you! So this added the correction ($200 of the $4333) paid by my client direct to the vendor into the project and recorded the in and out. BUT it didn't affect the Invoice for $105,059 that includes the total $4333 vendor BILL) or the Vendor Bill of $4333 under the vendor section. 

So it didn't work- it zero's out the clearing account I have to add the Vendor bill somewhere to get that paid as well..... 

What I had to do: 

start by adding check like you said But as soon as I got to Project and entered in the project it pulled up the Bill I had in there for the vendor that the client paid towards. I clicked add check on right hand side when it popped up. Changed amount to $200 since its only $200 not the full $4333. 

That reduced the vendor bill to $4133. 

Then I went to vendors to check on this and it had applied it to the vendor file as well! 

In the project I clicked Receive payment on the Invoice to the client for $105,000 and the check popped up and I applied it reducing the invoice balance to 104,800. 

SO you got my started! THanks!