Free accounting software: what the free options actually give you, and how to test one
Free accounting software is the right call for a lot of small businesses, freelancers and new organisations. Bookkeeping at that size is mostly recording money in and out, sending the odd invoice and producing something your accountant can work with at year end, and several free options do that well.
The thing to understand before you choose one is how each kind of free is paid for, because accounting software is almost never free by accident. Some limit how much you can do. Some make their money when your customers pay you. Some are free because you run them yourself. Each one is a reasonable deal, and each one is a different deal.
This page covers the four kinds of free, the decision to make before you compare anything, what free plans usually hold back, and six tests to run before you trust one with your books.
The four kinds of free
1. A free plan of an online product
A hosted accounting product with a free tier, capped by the number of invoices, clients, users or bank connections.
What it costs you: the cap, and where it sits. Caps on invoices and clients arrive as the business grows. Caps on users arrive the day your accountant or a colleague needs access. Check what the first paid plan costs, and which cap you will reach first.
2. Free because they earn on payments
The software costs nothing, and the vendor earns a fee when your customers pay invoices by card or bank through it.
What it costs you: a percentage of money you collect. For a business that invoices large amounts, that fee can be more than a subscription would have been. Work out what you would pay in a typical month, and check you can still record payments that arrive another way, such as a bank transfer or cash.
The sum is simple: the amount your clients pay through the tool each month, times its rate, against the price of a paid plan. With illustrative figures, £6,000 a month collected by card at 2.5% is £150 a month — for money that could have arrived by bank transfer at no cost. If the free tool still wins at your numbers, it is the right choice.
3. Open source, self-hosted
Free software you install on your own computer or server.
What it costs you: operations. Updates, backups and security are yours, and your accountant may not be able to work with the files directly. Books are the records you most need to be able to restore.
4. A spreadsheet
A well-built one works for longer than people expect — until the single-entry wall, where you need a balance sheet and a spreadsheet cash book cannot produce one honestly. We cover exactly where that line falls in accounting in Excel.
Decide what you need the software for first
Accounting software comes in two shapes, and free plans in particular lean one way or the other.
Bookkeeping first. Every transaction in and out of the business, categorised, whether or not an invoice was involved. Reports come from the ledger. This is what you need if your accountant asks for a profit and loss account and, eventually, a balance sheet.
Invoicing first. Bill clients, chase them, mark invoices paid. The books are a by-product of invoices. This is what freelancers often mean by accounting software, and it is fine until the rent, the software subscriptions and the card payments that never had an invoice have to go somewhere.
Then one more question: do you need double-entry books? If anyone will ask you for a balance sheet — a lender, an investor, your accountant at year end — the answer is yes, and a single-entry free tool will not get you there.
Which kind of free fits you
| Your situation | Best kind of free | Watch for |
|---|---|---|
| Sole trader on a cash basis, few transactions | A well-built spreadsheet, or a free plan | The day someone asks for a balance sheet |
| Freelancer who mostly invoices | A free invoicing-first tool | Expenses with no invoice, and card fees on what you collect |
| Small company with an accountant | The free plan of a double-entry product | The user cap, the moment your accountant needs access |
| Nonprofit with restricted funds | Very few free plans fit | Balances per fund, not per account |
The last row is the one people get wrong most expensively. A nonprofit's books have to show what each grant was spent on, and a free plan built for a small business has nowhere to put that. Nonprofit accounting software covers what it takes.
What free plans usually hold back
We keep a hand-counted inventory of what accounting and invoicing products actually ship, built from 37 real products:
| Capability | Products (of 37) |
|---|---|
| Income and expense ledger | 31 |
| Organisation setup and fiscal settings | 30 |
| Financial reports | 30 |
| Invoice builder | 29 |
| Customers and clients | 28 |
| Payments received and allocation | 28 |
| Document numbering and PDF templates | 27 |
| Bank and cash accounts | 26 |
| Dashboard | 25 |
The core is broadly available, including on free plans. What free plans tend to hold back is the part that saves time and keeps the books reconciled:
Bank connections. Importing transactions automatically instead of typing them. Free plans often limit or leave them out, and without them the ledger is only as complete as your patience.
A second user. Giving your accountant their own access. It is often the first thing that pushes a free plan to paid, because it happens at year end, when you have least time to shop around.
Reports. Profit and loss is usually there. Balance sheet, cash flow and money-owed reports may not be, and a balance sheet needs double-entry books underneath it.
What your accountant will ask for at year end
The best test of a free tool is whether it can produce what your accountant needs without a spreadsheet beside it. At year end that is usually:
- Every bank and cash account reconciled to its statement on the last day of the year.
- A list of unpaid invoices — what customers owed you on that date.
- A list of unpaid bills — what you owed suppliers on that date.
- Equipment and other large purchases, listed separately from everyday expenses.
- Loans, and money you took out of or put into the business, kept apart from income and expenses.
- Sales tax or VAT returns for the year, if you are registered, reconciled to the books.
If a free tool cannot produce items 2 and 3 as at a date, it is working from invoices rather than a ledger. If it cannot keep item 5 apart, your profit will be wrong in one direction or the other.
Test free accounting software in an afternoon
Run these six with made-up figures before you enter a real transaction.
- Record an expense with no invoice — a card payment for software — and find it in the profit and loss report. If it does not appear, the reports are built from invoices, not from the books.
- Reconcile a bank account. Enter a few transactions and compare the balance with a statement. If you cannot see why they differ, you do not have reconciliation.
- Take a part payment on an invoice. The invoice should show the balance due, and the list of money owed to you should move by exactly that amount.
- Create two invoices at the same time, in two browser tabs. They must get different numbers.
- Ask for a balance sheet. If you get one, check it balances. If you cannot get one and you will need one, you have your answer.
- Export everything in a format your accountant can use. If you cannot leave with your data, do not put it in.
Five mistakes that cost people at year end
Mixing business and personal money. A free tool connected to a personal account imports everything, and someone then has to sort it, usually at the worst time. Open a separate business account before you start, even as a sole trader.
Deleting invoices instead of crediting them. A mistaken invoice should be cancelled with a credit note, not deleted. Deleted invoices leave gaps in the numbering, and gaps are exactly what an accountant or a tax inspector asks about.
Editing a closed period. Once your accountant has prepared the year-end figures, last year should be locked. A tool without period locking lets anyone change a filed figure by accident, and the books then no longer match what was filed.
Inventing categories as you go. "Misc", "Other" and "Sundries" grow until nobody can read the profit and loss. Agree the list once, with your accountant, and add to it deliberately.
Not keeping your own export. Free plans change their terms, and products close. Export everything at each year end and keep it somewhere you control.
Moving off a spreadsheet without losing anything
Start at a period boundary — the start of your financial year if you can, the start of a quarter if you cannot. Moving mid-period splits a report across two systems.
Bring in opening balances, not history. Enter each bank and cash account's balance, and what customers owe you and what you owe suppliers, as of the start date. Keep the spreadsheet read-only as the archive for everything before it. Re-keying years of transactions buys nothing but typing errors.
Agree the categories with your accountant before you start. Changing them later means recategorising everything, and it is the step people most often skip.
When free stops being free
A second user arrives first, usually your accountant at year end.
Then bank connections, when typing transactions stops being tolerable.
Then the invoice or client cap, as the business grows — or, on a payments-funded tool, the point where the fees on money you collect exceed what a subscription would cost.
Knowing which is coming makes the upgrade a decision rather than a surprise.
The option worth considering at that point
For accounting, the honest default is to buy. Mature accounting software is inexpensive, maintained, and built around tax and reporting rules that change. For most businesses a paid plan of a good product is the right next step, and accounting software features gives you the counted list to judge one by.
Building your own is worth considering only when your business is genuinely unusual — job costing across projects, fund accounting for a nonprofit, a workflow no product fits — and even then the ledger rules have to be right before anything else. We cover two of those cases in construction accounting software and nonprofit accounting software.
If you do build with a coding agent, the Accounting & Invoicing planner is the specification we hand ours: bookkeeping before invoicing, the numbering and reporting rules, and the scope boundaries. The 19 questions it asks are published in full.