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Why do you need to create a Clearing Account for Bill Payments?

What is a Clearing Account?

A clearing account (also known as a "bridge" or "temporary" account) is used to temporarily hold funds when a payment is in process but hasn’t yet been fully reconciled in your accounting system.

When using Bill.com, especially for batch payments, a clearing account helps ensure that your accounting system accurately reflects how money moves from your bank account to your vendors—without confusing or incorrect records.


❓ Why Is It Needed?

Most accounting systems (like Sage or QuickBooks) expect one-to-one matching between:

  • The bank transaction (what’s withdrawn from your bank), and

  • The invoice payment (what’s recorded against a vendor bill).

However, Bill.com makes payments in batches. For example, if you pay 10 invoices in one batch totaling $50,000, your bank statement shows one withdrawal—but your accounting system sees 10 separate payments. This mismatch makes reconciliation difficult.

That’s where the clearing account comes in.


🔄 How It Works (Step-by-Step)

🔧 Setup Requirements:

Before using this process, make sure:

  • A Clearing Account is created in your accounting system.

  • (Optional) A Dummy Bank Account is set up and mapped to the clearing account (required in some configurations).


🧠 Example Workflow:

Let’s say you’re paying 5 vendor invoices totaling $25,000.

✅ Step 1: Initiate Batch Payment in Bill.com

  • Bill.com sends a single withdrawal request of $25,000 to your bank.

✅ Step 2: Record Journal Entry

  • A journal entry is automatically created:

    • Debit: Clearing Account $25,000

    • Credit: Bank/Cash Account $25,000

  • This shows that funds have left your bank and are now sitting in the clearing account.

✅ Step 3: Apply Invoice Payments

  • As Bill.com marks each invoice as paid:

    • Credit: Clearing Account $5,000

    • Debit: Accounts Payable (or Vendor) $5,000

  • This happens for each invoice in the batch.

✅ Step 4: Reconciliation

  • All invoice payments are matched against the clearing account, not your bank account.

  • Your bank account only shows one transaction (the batch withdrawal), which aligns with the original journal entry.

  • No manual matching required—your system stays clean and accurate.


🎯 Benefits of Using a Clearing Account

✅ Simplifies Reconciliation
You no longer need to manually match dozens of invoice payments to one bank transaction.

✅ Eliminates Errors
Since entries are system-generated, there’s no risk of mismatching payments or duplicating entries.

✅ Streamlines Audits
Auditors and accountants can trace the full flow of funds clearly—from bank to clearing to vendor.

✅ Automates Your Process
No more manual journal entries or invoice tracking across systems.


💡 When Not to Use a Clearing Account

If you're processing individual payments (not batches), and your accounting system supports matching individual withdrawals to invoice records, then you might not need a clearing account.

But for most batch payment setups—especially with platforms like Bill.com—a clearing account is strongly recommended.

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