Nursery Accounting Software: What You Need to Know

Nursery accounting software is the part of your system that turns what a child is booked to attend into an invoice: it knows each child's sessions, takes off the hours the council funds, adds meals, consumables and extras, and sends the result to the parent and to your bookkeeping package. It is not usually a replacement for Xero or QuickBooks. A general ledger is good at VAT, bank feeds and year-end accounts, and knows nothing about funded hours. A nursery system knows funded hours and should hand the finished invoices to the ledger rather than make you type them in twice.

This guide covers why nursery billing is different from ordinary invoicing, what the rules in England now say an invoice must show, and the questions worth asking before you choose or change software.

Why nursery billing is different

Most small businesses invoice for what they sold. A nursery invoices for what a family booked, minus what the state pays for, plus a set of optional extras that have their own rules. Four things make that harder than it looks:

• Funded hours sit inside the same sessions you charge for. A child booked for 50 hours a week with a 30-hour entitlement is partly funded and partly paid for, and the split depends on how you apply the funded hours across the day and the year (term-time only, or stretched across more weeks).
• Two customers pay for one place. The parent pays the invoice; the council pays for the funded hours, usually in advance and adjusted later. Your income for a month is the sum of both, and only one of them appears on the parent's invoice.
• Bookings change mid-month. Extra sessions, swapped days, children starting and leaving part-way through a billing period all need pro-rating that a generic invoicing tool leaves to you.
• Charges on funded hours are regulated. You can charge for meals, consumables and optional activities, but those charges must be voluntary and must not be a condition of taking up the funded place.

What an invoice must show in England

The Department for Education's statutory guidance for local authorities, Early education and childcare (valid from 1 April 2026), asks that invoices are itemised so parents can see the funded hours were not charged for. It lists the lines separately: the free entitlement hours, any additional paid hours, food, non-food consumables and activities. The same guidance says providers should publish the cost of their chargeable extras, and that a provider cannot charge top-up fees, non-refundable registration fees or deposits, or unitemised “enrichment” charges in connection with the funded hours.

Your council's provider agreement adds its own detail, and council audits commonly ask to see a sample of invoices for funded children. If your current process means building those invoices by hand in a spreadsheet, that is usually the first thing worth fixing. Our guide to preparing for an early years funding audit covers what councils typically look at.

What nursery accounting software should do

Bill from the sessions you already hold

The register and the invoice should come from the same record. If a child's booked sessions are in your management system, the invoice should be calculated from them rather than re-entered. That includes sessions for children who start or leave part-way through a month, and extra sessions booked on the day.

Take off funded hours correctly

The software needs to know each child's entitlement and the weeks it applies to, and show the funded hours on every invoice line. It should also cope with stretched entitlements, where a family takes fewer funded hours a week over more weeks of the year.

Itemise extras the way the guidance asks

Meals, nappies and wipes, trips and other optional activities should appear as separate, named lines with their own prices, not folded into the session rate.

Send invoices to your ledger, and bring payments back

The point of connecting to Xero or QuickBooks is that each invoice is raised once. When a parent pays and the payment is reconciled in your accounts, the invoice in the nursery system should show as paid without anyone marking it by hand. Ask a supplier exactly which direction each piece of data travels, and what happens when a sync fails.

Accept Tax-Free Childcare and other payment routes

Many parents pay part of their bill through Tax-Free Childcare, where the government adds £2 for every £8 a parent pays in, up to £2,000 a year per child (£4,000 for a disabled child). To receive those payments you must be signed up as a provider. The payments arrive from HMRC rather than from the parent's own bank account, so your invoices and reconciliation need to cope with one bill being settled from more than one source.

Show the money you're owed by the council, not just by parents

Because parent invoices exclude funded hours, they understate a funded child's real income. Useful reporting puts council funding (priced at your local rates for each age band) alongside parent fees, so you can see what each room and each place actually earns.

Questions to ask before you choose

1. Which accounting packages does it connect to today, and which are only planned?
2. Is the connection one-way (invoices out) or two-way (payments back)?
3. How does it apply funded hours across a day, and can it handle stretched entitlements?
4. Does every invoice show funded hours, paid hours, food, consumables and activities separately?
5. What happens when a child changes sessions mid-month: is the next invoice adjusted automatically?
6. Can you export the detail behind your invoices, line by line, for your accountant or an audit?
7. Can parents see and download their invoices and payment history themselves?
8. How long does it take to move your children, sessions and opening balances across?

Standalone accounts package or integrated nursery system?

Some settings run invoicing directly in their accounting package. That can work for a small setting with few funded children and simple fees, and it keeps everything in one tool your accountant already knows. The cost is manual work each month: working out funded hours, pro-rating changes and itemising extras by hand, then checking the register still matches.

An integrated nursery system does the nursery-specific calculation and leaves the accounting package to do accounting. The trade-off is another system to learn and pay for, and you are relying on the quality of the connection between the two. Either way, the test is the same: could you show a parent, or a council auditor, exactly how an invoice was worked out?

How Pigeonhole does it

Pigeonhole calculates invoices from each child's booked sessions and extra charges, shows the funded hours on each session line, and can run billing automatically on a schedule you set. It connects to Xero and QuickBooks Online: invoices are pushed to your ledger, and payments recorded there come back and update the invoice in Pigeonhole. We don't connect to Sage or FreeAgent today. If your accountant uses one of those, Pigeonhole can still produce and send the invoices, and you can export a line-by-line CSV of every invoiced session for them.

Parents see their invoices and payment history in their own portal. Finance reports put projected council funding, priced at the rates you enter for each age band, alongside parent fees.

More detail is on our nursery accounting software page, and the Xero and QuickBooks integration page explains how the sync works.