1. Subcontractor invoices directly.
2. Subcontractor invoices a broker, who invoices you.

Subcontractors who bill directly are easy: enter their invoices as bills balanced against Direct Cost expenses, proceed as usual.

The difficulty here is with brokers who want to act as a sort of “bank” by requiring escrows and holding monies internally. This is a very good business for them as I believe they are able to generate short term interest income from such holdings (which they keep of course).

So how to set these up in the books? There are two ways to do it: using an asset account, or using an expense account treating the broker as the subcontractor.

The first way to do it is to list the broker, let’s say “CodersRUs.com” as an asset account, similar to Paypal. This makes sense on one level as the brokering service does handle money. The difficulty with this is how the Direct Costs for services is handled, which is tax deductible expense account. In other words, the broker takes in your money for different purposes using the same mechanism (i.e., credit card, Paypal, etc.) This leads to confusion.

For accounting purposes in Quickbooks, it’s easier to use the second method and consider the broker as the subcontractor, instead of the person actually doing the work.

Escrow monies can be considered as direct expenses, and recorded as refunds when necessary.

Keeping track of who actually did the work requires either categorizing each broker transaction by job, or making a memo entry listing the person and purpose of each transaction. I prefer not to categorize by job because the default report lists the job on the transaction rather than the subcontractor, which is not helpful to me.

Outsource accounting in Quickbooks is a post from: Collaboration Chronicles