When to use QuickBooks Online Inventory

As a bookkeeper that mainly deals with eCommerce sellers, understandably, I have many clients with inventory. While this isn’t always the case, as some sellers dropship and don’t ever hold any inventory, if they do, how they manage it within their accounting tech stack always becomes a question. QuickBooks Online can be very limited with inventory functions and might not meet the needs of certain sellers. Sometimes QuickBooks ProAdvisors advise against ever managing inventory in QuickBooks Online if they are dealing with an eCommerce seller, but there are times when it works just fine. 

In this article, I’ve created a list highlighting specific scenarios where QuickBooks Online can be just fine for managing inventory and when you should consider using a third-party solution. It just depends on the client’s situation, and that is why it is crucial to listen carefully to your clients, what their needs are, and become an expert advisor in what they need. 

When will QuickBooks inventory suffice?

Taking into consideration that the inventory costing method QuickBooks Online uses is First-in, First-out (FIFO), and that works just fine with what your client is selling, here are three different scenarios in which I can manage my clients’ inventory in QuickBooks Online with no issues: 

1.    The client sells inventory items for one or more brick-and-mortar stores, using locations if necessary. The client records sales using a Sales Receipt or Invoice using an automation connector such as A2X, Bookkeep, or Synder.  

2.   The client sells inventory items for one more brick-and-mortar store AND on one e-commerce platform, and sales are posted to QuickBooks Online via Sales Receipt or Invoice using an automation connector such as A2x, Bookkeep, or Synder. 

3.    The client sells inventory items AND bundles on one sales platform. The client posts sales using Sales Receipts or Invoices using an automation connector such as A2x, Bookkeep, or Synder.  

For the reasons mentioned above, I may choose to manage a client’s inventory in QuickBooks Online. If I have a pretty simple scenario, such as Shopify sales receipts coming in from the QB commerce connector, my inventory is updated with each posting. I have found that it is also easier for me to help clients troubleshoot if they are dealing with QuickBooks Online. My rule of thumb usually is that the more tech involved, the more difficult and complicated things are. My clients seem to have a simpler time dealing with everything in QuickBooks Online.  

When should you consider a cloud-based IMS vs QBO?

There are 4 scenarios where I should NOT manage my client’s inventory in QuickBooks Online and use a cloud-based IMS (inventory management solution): 

1.    Your client sells inventory items for brick-and-mortar store, AND more than one sales channel, such as their Shopify website and Amazon. This can’t work because the inventory levels can’t be pushed simultaneously to both sales channels. You need an IMS (Inventory Management System) like Katana that acts as a hub and sends stock levels to Shopify and Amazon, or any other cart connection you may have. Your sales and COGS are then synchronized to QuickBooks Online with each invoice sent over, and inventory value quantity increases with purchases sent to QuickBooks Online as bills. 

2.    Your client may need to use an inventory costing method OTHER than FIFO. QuickBooks Online only uses FIFO , which may not be suitable for the sold items. 

3.   Your client needs to assemble items. This is NOT possible in QuickBooks Online. QuickBooks Online inventory is only meant for buying and reselling items as individuals or kits.  You need to utilize an IMS like Katana that allows for manufacturing items, or manufacturing AND reselling items, which Katana allows.  

4.    You need the ability to add operational COGS into your inventory, which Katana allows, and QuickBooks Online does not.   

Lean into Katana for manufacturing and reselling

For manufacturing and reselling, Katana is a fantastic solution. The interface is very simple and quite easy to learn. Frankly, I did not have a ton of time to learn a new solution, and I was able to have a working knowledge of Katana within a day. They are adding new functionalities daily, and will soon be more powerful than it already is. Their standard inventory costing method is currently moving average, but there is more to come. 

As many people in our industry have pointed out, it is important to be a trusted advisor to your client, and although inventory can be tricky, if it is something that you can do well, you will be able to manage many integrated cloud-based solutions that allow for remote access, something that QuickBooks Desktop Enterprise does not support unless you host it in the cloud using a third-party provider. The trick is knowing when using QuickBooks Online inventory is just fine, and when it is not going to accomplish what you need. Good luck!