Nonprofits have an invoicing problem that commercial businesses do not: most of your incoming money is not an invoice at all.
Donations, grants and membership subscriptions are receipts, not sales. Only part of your income — service contracts, room hire, training, trading activity — behaves like ordinary invoicing. Choosing software that treats everything as a sale produces accounts your treasurer cannot reconcile and a board report that means nothing.
Separate the Money Types First
This decides which software you need, and getting it wrong causes months of cleanup.
Donations. Not invoiced. They need receipting, donor records and — in many jurisdictions — tax documentation. This is a fundraising system’s job, not an invoicing system’s.
Grants. Usually paid against a funding agreement with milestones and restricted purposes, often requiring drawdown requests rather than invoices. Restricted funds must be tracked separately.
Memberships. Recurring, sometimes part-donation and part-benefit, which affects tax treatment.
Trading income. Genuine invoicing — consultancy, training, venue hire, sponsorship. This is where invoicing software applies.
Most small charities need receipting and fund accounting plus modest invoicing, and buy invoicing software expecting it to handle the first two.
The Options
Accounting with fund tracking
Xero with tracking categories, or QuickBooks with classes, approximates restricted fund reporting and handles invoicing properly. Both have nonprofit discount routes — often through TechSoup rather than directly.
Adequate if you hold a small number of restricted funds. It strains with many funds, multi-year grants or a demanding independent examiner.
Sage Intacct and Aplos handle genuine fund accounting natively, with Aplos aimed specifically at nonprofits and churches at a smaller scale.
Donation and CRM platforms
Donorbox, Givebutter and Zeffy handle donations and receipting. Zeffy is notable for a zero-platform-fee model funded by optional donor tips — worth checking against your circumstances.
Beacon, Salesforce Nonprofit Cloud and Bloomerang combine donor CRM with fundraising. Salesforce offers donated licences to eligible nonprofits, though implementation is a project.
These record income. They are not accounting systems, and the two must reconcile.
Straightforward invoicing
Zoho Invoice has historically been free for small organisations. Wave has offered free core invoicing. Both are sufficient for modest trading income alongside a proper accounting system.
How They Compare
| Tool | Fund accounting | Donation receipting | Invoicing | Best for |
|---|---|---|---|---|
| Xero / QuickBooks | Via categories | No | Strong | Small charities, few funds |
| Aplos | Native | Yes | Yes | Restricted funds, churches |
| Sage Intacct | Native | Via integration | Strong | Larger nonprofits |
| Donorbox / Givebutter | No | Strong | No | Donation processing |
| Beacon / Bloomerang | No | Strong | Limited | Donor management |
| Zoho Invoice / Wave | No | No | Yes | Modest trading income |
Check TechSoup before paying for anything. It validates charitable status once and distributes donated or discounted software from many vendors — and a large number of nonprofits do not know it exists.
Restricted Funds Are Not Optional
The obligation that determines your software more than any feature.
If a donor or funder specifies what their money is for, it is restricted and cannot lawfully be spent on anything else. You must be able to show, at any point, how much of each restricted fund remains and what it was spent on.
Practical consequences:
- Every transaction needs a fund allocation, not just a category
- Your reports must split restricted from unrestricted — a single bank balance tells you nothing about what you can actually spend
- Overspending a restricted fund means the shortfall falls on unrestricted funds, which trustees need to know about promptly
- Multi-year grants carry balances across financial years
UK charities preparing accounts under the Charities SORP have specific requirements for fund reporting. US organisations report net assets with and without donor restrictions. Other jurisdictions have their own frameworks.
If you hold more than a handful of restricted funds, categories in general accounting software will not hold up. That is when purpose-built fund accounting earns its cost.
Donation Receipting and Tax
Separate from invoicing and frequently conflated with it.
US. Written acknowledgement is required for donations at and above a threshold set by the IRS, with specific wording about whether goods or services were provided in return. Donors need this to claim a deduction.
UK. Gift Aid lets you reclaim basic rate tax on eligible donations, and it requires a valid declaration from the donor and proper records. This is meaningful additional income and it depends entirely on your record-keeping.
Split payments. Where a donor receives something in return — an event ticket, a membership benefit — the donation element and the benefit element are treated differently. Your system needs to handle that split, and general invoicing software does not.
Check your own jurisdiction’s rules. The point is that receipting is a compliance function, not a courtesy.
Common Mistakes to Avoid
- Treating donations as invoices. Different tax treatment, different records, different software.
- Not tracking restricted funds separately. A single bank balance hides money you cannot spend.
- Two systems that never reconcile. If donations live in a fundraising platform and money in accounting software, someone must reconcile them monthly. Decide who.
- Missing Gift Aid or equivalent. Real income lost to incomplete records.
- Not checking TechSoup. The main discount route and widely unknown.
- Ignoring the split on benefit-carrying donations. Event tickets and memberships need separating.
- Choosing without asking your examiner. Whoever audits or independently examines your accounts has a view, and using something they know reduces your fees.
- No retention policy for donor data. Donor records are personal data with retention obligations.
FAQs
Do nonprofits need invoicing software?
Only for trading income — consultancy, training, venue hire, sponsorship. Donations and grants need receipting and fund accounting instead, which is a different category of tool.
What is the best accounting software for a small charity?
Xero or QuickBooks with tracking categories if you hold few restricted funds and want a nonprofit discount. Aplos if genuine fund accounting is required. Check TechSoup for discounted licences first.
How do I track restricted funds?
Every transaction gets a fund allocation, and your reports split restricted from unrestricted. Categories in general software approximate this for a few funds; purpose-built fund accounting handles many.
Can I send a donation receipt from invoicing software?
Generally not properly. Donation receipts require specific wording about whether goods or services were provided, and in the UK Gift Aid requires a valid declaration and records. Use donation software or accounting software that handles receipting.
Is there free software for nonprofits?
Zoho Invoice has been free for small organisations, Wave has offered free core accounting, and Zeffy operates a zero-platform-fee donation model. TechSoup distributes donated licences from many vendors.
Should our donation platform and accounts be the same system?
They rarely are, and that is fine as long as someone reconciles them monthly. The failure mode is two systems disagreeing and nobody noticing until year end.
Key Takeaways
- Donations, grants and trading income are three different things needing different handling.
- Restricted funds must be tracked separately — this determines your software.
- Donation receipting is a compliance function with specific requirements, not invoicing.
- Register with TechSoup before paying for anything.
- Ask your independent examiner or auditor which system they prefer.
Where to Start
List your income sources and mark each as donation, grant, membership or trading. If trading is a small share, you need fund accounting with light invoicing rather than invoicing software — and your examiner’s preference should decide between the options.
For related decisions, see our guides to accounting software nonprofit discounts, accounting software and email marketing software for nonprofits.