How to Offset Invoices in MoneyWorks When Contra Invoices Won't Work

When you purchase goods from a supplier, you receive an invoice for $10,000. You record it in MoneyWorks as a purchase invoice, which debits your inventory assets and credits your payables account. Everything appears correct.

But here's where it gets interesting. Suppose your company specialises in subcontracting services, and you provide services to the same supplier from whom you purchase goods. Now, your supplier (creditor) is also your customer (debtor). How should you handle invoicing?

You have two options: either mark your supplier as both a creditor and a debtor within the same MoneyWorks name record, or add a new name in MoneyWorks for the customer side and categorise it as a debtor. The first option involves opening the creditor from the Names list and ticking the Debtor box. A ‘Name’ in MoneyWorks can be both a customer and a supplier. However, using a separate name might look tidier and help you avoid confusion between customer and supplier invoices in the future. For illustration, you choose the second option and add a new debtor in MoneyWorks—ACME Supplies.

You recorded a sales invoice for $2,000 worth of service to ACME Supplies. The journal entry debits the receivable and credits income.

In your books, you owe ACME Supplies $10,000, but they owe you $2,000. So, how do you settle both amounts?

The simplest method is to swap payments. You pay ACME Supplies $10,000 to settle the bill, and they give you $2,000 to reduce what they owe you. Easy.

However, sometimes due to bank charges or other reasons, instead of making payments and sending a cheque for $10,000, you prefer to offset the payable against the receivable and transfer only the difference—$8,000.

When MoneyWorks Says ‘Not So Fast’

From the command menu adjustments, you spotted the 'Contra invoices' feature. You click on that, thinking it's exactly what you need. But sadly, it doesn't work as you had hoped.

Why is ‘Contra Invoices’ not working?

The 'Contra Invoices' feature only offsets invoices and credit notes from the same customer (or supplier)—not between multiple customers, multiple suppliers, or between receivable and payable accounts. Although you are ‘paying and receiving’ from the same name (ACME Supplies), you are trying to offset between receivable and payable, which MoneyWorks does not allow.

So what's next?

The Workaround: Using a Clearing Account

If you still prefer to offset the debtor (customer) and the creditor (supplier), you will need a clearing account to bridge the difference. A clearing bank is not a real bank account; it is simply a transit account used for offsetting between the debtor and the creditor.

How to Create a Clearing Account

From the Show menu, select ‘Accounts’. Click the ‘New’ button to add a new account. Enter your account code for the bank account (e.g., 2030) and the account name (e.g., ‘Clearing Bank’ or any other name that makes sense to you) into the Description field. Then, select ‘Bank Account’ as the Account Type. You must use the ‘Bank Account’ type because only bank accounts appear in the ‘Bank’ field of payment and receipt transactions.

Sample of a Clearing Bank account in MoneyWorks

Contra Invoices between the Debtor and the Creditor

The process involves three main steps:

Step 1: Receive the contra portion.

Record a receipt of $2,000 from ACME Supplies into the Clearing Bank account and use it to settle the sales invoice. Your receivable from ACME Supplies is now zero.

Step 2: Pay the contra portion.

Record a payment of $2,000 from the Clearing Bank account to ACME Supplies against the purchase invoice. This reduces your payable to them.

Use a Clearing Bank account to contra

Step 3: Pay the remaining balance.

Pay the remaining $8,000 directly from your main bank account (e.g., 'Cash at Bank' or another real bank account in your ledger) to ACME Supplies to fully settle the purchase invoice.

Troubleshooting Common Problems

Problem: My clearing account doesn't balance to zero

It usually happens when you've missed a step or entered incorrect amounts. Make sure that your receipt amount exactly matches your payment amount for the contra portion. In our example, both should be $2,000. The clearing account should always return to zero after all contra entries have been completed.

Problem: The Cash at Bank account appears cluttered with extra transactions

Remember, two bank accounts are involved: the Clearing Bank account, which you use for the ‘contra’ of the $2,000 between the receivable and payable, and the actual payment of $8,000 from the Cash at Bank account. You should see two transactions (a debit and a credit) in the Clearing Bank, and one transaction of $8,000 in the Cash at Bank account (your actual bank account). If you notice more than one transaction in the Cash at Bank account, it likely indicates an error.

Problem: What if they owed me more than I owed them?

Suppose they owe $10,000, but you only owe them $2,000. Now, your receivable is $10,000, and the payable is $2,000. The first two steps remain the same, but in the final step, you would receive $8,000 from them, rather than making a payment.

When to Choose Each Method

Use the Exchange Payment Method When:

• You need clear, simple records

• Both parties prefer separate transactions

• You are dealing with different currencies

• Auditors require transparent audit trails

Use the Clearing Account Method When:

• You want to minimise actual cash transfers

• Both parties agree to a net settlement

• You're managing cash flow carefully

• The amounts are significant enough to matter

Impact on Your Financial Reports

Remember that the clearing account method increases transaction volume in your records. It will add extra ledger entries in your reports, even if no actual cash has moved. You should explain this to stakeholders reviewing your reports. 

The aged receivables and payables reports will also reconcile differently — receivables clear immediately when you process the clearing receipt, while payables decrease gradually through the process. The payment history enquiry will display the payments associated with the supplier invoice (in our example, two payments).

The Bottom Line

Exchange payments are indeed simpler. However, if you prefer to offset between the debtor and creditor, you’ll need to take a few extra steps in MoneyWorks.

The clearing account method produces the same outcome; it's simply a question of whether you want the extra steps added to your workflow, and if precise reporting outweighs the benefit of reducing cash

Note:

Before using clearing accounts, check with your accountant or auditor. This method affects reporting, and in some jurisdictions, legal or accounting rules may restrict offsetting receivables and payables.

Exchange Payments vs. Clearing Account Method:

Here’s a quick comparison to help you decide:

• Simplicity: Exchange payments are simpler.

• Cash Flow: Clearing accounts reduce actual cash movement.

• Reporting: Clearing accounts increase ledger entries.

• Audit Trail: Exchange payments are more transparent.

Select the method that best suits your business processes and reporting requirements. If you are in doubt, consult your accountant or MoneyWorks support for advice tailored to your specific situation.