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Xero Review

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How this review works

This Xero review was done by me, Greg Lam. I own the Small Business Doer website and my goal is to help small business people. The review is my own personal opinion and I was not paid by the manufacturer to write it. I was offered a guided tour before I did this review but declined. I want to keep these reviews as real and unbiased as possible, which I think is hard to do when receiving special attention and guidance.

I've been a small business owner since 1998. I have a degree in business from Simon Fraser University in Burnaby, B.C. (Canada). I've been doing bookkeeping for myself and others since 1998, primarily with QuickBooks. I'm also a certified QuickBooks Pro Advisor.

I am currently comparing various online accounting software and will write a review on each of them as I go along.

This review of Xero was completed on August 27, 2012 (and updated on September 22, 2012). The date is important to note, since software changes so quickly.

I spent the a total of 4 days using the software and writing this review. I imported a trial balance ending December 31, 2011 from my QuickBooks Accountant Edition 2012 Desktop software. From there I entered and reconciled all the transactions for one month.

This review is not just an assessment of Xero's strengths and limitations, but a bit of a walk through as well. I've decided to include some of the notes that I created as I used the software myself to enable potential users to follow along.

If there is anything that I've said that is inaccurate or false, please let me know so that I can update the article.

Topics

  1. introduction
  2. user interface
  3. accrual accounting
  4. double-entry accounting
  5. chart of accounts
  6. reconciliation
  7. importing and syncing data from bank
  8. data import
  9. data export
  10. auto entry of data
  11. reporting
  12. taxes
  13. document attachment
  14. multi-currency
  15. invoicing
  16. payment processing
  17. payroll
  18. inventory
  19. integration
  20. mobile app
  21. other features
  22. support / help documentation
  23. improvements
  24. country it’s made in
  25. price
  26. recommendation
  27. setup and walk through notes


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1. introduction

You can check out Xero at http://www.xero.com/.

Signup is basic and no credit card is required.

sign up for free trial

sign up for free trial

The trial is limited to 180 days with a maximum of 5 new invoices and 50 reconciled bank transactions.

trial limitations

trial limitations

When you sign up for the free trial, you'll also be able to access Xero's Demo Company. This may be handy if you're looking to take a quick peak at how everything works. I would like to add a note that I did this and was initially not impressed with Xero. After spending the time to properly investigate Xero for this review, my opinion definitely changed, so you may want to take more than a half hour evaluating the software before deciding. This is probably good advice for any software for that matter, especially software that you'll most likely need to use hours per week.

Xero was founded in New Zealand but has offices in Australia, United States, and United Kingdom.

Xero's offer is similar to other online accounting software out there. Access your books anytime, anywhere, and save time.

xero feature page

xero feature page

We'll see how Xero does!


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2. user interface

The usability of software is something that can get overlooked when strictly examining comparison charts or feature lists. There’s a difference between having a feature and having a usable feature.

I've got mixed feelings about the interface in Xero. The more I use it and understand it, the easier it becomes. However, initially it was a bit hard to find what I was looking for. It kind of feels like QuickBooks in that you have to learn the terminology used and the work flow designed in order to truly understand the system. This means a bit of a learning curve, especially for the beginner.

On the other hand, once I mostly figured out Xero, I was able to quickly do what I wanted.

This is a look at Xero's dashboard.

xero's dashboard

xero's dashboard

If you click on “Manage Account” you can access most anything you'd want to do involving your bank account.

click on "Manage Account" to get more options

click on "Manage Account" to get more options

For the majority of things you'd need to do on a daily basis in Xero you could access via your dashboard.

The setup process in Xero is top-notch, by far the best I've seen. You can read more about this in the setup and walk through notes section.

getting help in xero

getting help in xero

I enjoyed Xero's built in help. In every section there was a “Getting Started” box (#2 in the screen shot above). If you don't need the tips, you can click on the X and it goes away. I think this is a much better design than having pop-ups with tips harassing you. You can always get the “Getting Started” back by clicking on the help link in the navigation bar on the top (#1 in the screen shot above). For specific help on a particular function, you can click on the questions mark to receive a pop-up of extra info (#3 in the screen shot above).

I like this approach to help. I had help that was easy-to-access when I needed it yet not in my face and distracting. This made sure the interface was not cluttered with irrelevant data for both beginners and power users. I talk more about the help and support in that section of this review.

There were also some little things that I liked about Xero's interface, like the ability to choose how many items you wanted to show on a page.

change how many items to show per page

change how many items to show per page

Linking Data and Transactions Together

One of the big benefits of using specialized accounting software is that it can link data and transactions together. For example, if you're viewing an invoice you're able to see the payment associated with that invoice (as seen in the screen shot below).

payment linked to invoice - part 1

payment linked to invoice - part 1

payment linked to invoice - part 2

payment linked to invoice - part 2

As you can see, by clicking on the blue “payment” link, I can see the details of the payment (part 2). You'll also notice in the part 2 screen shot above that there's a “View Details” link that will take you to the reconciliation as well as links to each invoice in the payment.

This is one example of data and transactions being linked together in Xero, but it is done throughout the software. Other software does this as well, so it's not only Xero, but I'm glad to see that Xero has strong “drill down” (linking data and transactions together) functionality built in.

Speed

The reaction time of online software is an important consideration, especially if you're used to the responsiveness of desktop applications.

The speed and reaction time for Xero were great. I didn't encounter much lag time when entering information or clicking on items. Xero was able to keep up with me.

The thing that did slow me down was navigation (clicking on a few menu items before getting to the window I wanted), but not by much. I still think that Kashoo has the best interface for online accounting software, which has a single nav bar on the left hand side of the screen that allows you to access virtually every function within its software with one click (sometimes you'd need to click once more on a tab to switch views, but still, such a clean interface). Something that I've come to appreciate is that sometimes less is more. Having many ways to get to a function can be useful, but I've seen it also be confusing for new users who don't know what all the buttons are for.

Search / Finding Data

Being able to find your data easily is nice. This is actually quite an important feature since I find bookkeeping to be an investigative type of job. The more powerful your search capabilities, the faster you can work.

Xero doesn't have a universal search feature, like QuickBooks Online does. However, you can search specific areas. For example, within bank account you can click the “search” button.

find data within a bank account

find data within a bank account

You will then get search options as seen below that will help you filter results.

search box to find data within a bank account

search box to find data within a bank account

This allows you to search by name, description, amount, and date (or various combinations of those criteria). It worked well for me. This type of search is also available for accounts receivable, accounts payable, and contacts. You can only use this search for bank accounts, you can't do this for any type of account, which is too bad (if Xero added this search to “Chart of Accounts” it would largely solve this issue).

Tracking Changes / Undo Button

Being able to track what someone else has done is important for auditing and investigating how data was entered and manipulated. I use it more for those “how did this happen” (rather than “who did this”) moments, which enables me to fix these.

There is an audit trail in Xero called History. You have to go transaction by transaction to look at the details. The exact specifics of how to find the audit trail and what type of data is collected can be found here http://help.xero.com/int/#Payments_HistoryNotes.

audit trail (history) is found on the bottom of the page when available

audit trail (history) is found on the bottom of the page when available

For the accountants out there, you can't delete accounts receivable or payable transactions (bills and invoices), only void them, so the history still remains. For other types of transactions (such as “Spend Money” or “Receive Money” you can delete the transactions and no history is kept).

If you want a complete audit trail, you can use the Journal Report (go to Reports > All Reports > Journal Report) . It doesn't let you drill down into details or see who did what, but it does show deleted transactions.

journal report

journal report

Another useful software function is the ability to undo a mistake or to redo something that you accidentally deleted.

I currently don't see any way to undo a mistake (via some undo button) or to recreate a transaction that was accidentally deleted.

Update: While there is no undo button, if you happen to delete a transaction (line item) from your bank statement you are able to restore the transaction. I think this is the only type of transaction you can restore if deleted, but someone please step in and correct me if there are other situations in which you can restore a deleted transaction.


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accrual accounting

Accrual accounting is like the grown up bicycle, while cash accounting is like the training wheels on a child's bike. Eventually, you'll want to (and need) to use accrual accounting.

So can the software accommodate this?

Yes, Xero does have accrual accounting by default. In fact, I don't see any way not to do accrual accounting. If you're looking to see the actual cash going in and out of your business you can try the “Cash Summary” report under Reports > All Reports > Cash Summary.


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double-entry accounting

Having a general journal entry window lets someone who understands bookkeeping or accounting quickly add transactions and make modifications to the books. This is an extremely essential feature that your bookkeeper or accountant would be glad to have.

Xero has double-entry accounting. You do have to enable this ability by making yourself (or whichever user you want to give this ability to) a “financial adviser”. You can change a user's role by going to Settings > General Setttings > Users.

user roles

user roles

In case you can't understand the categories in the above screen shot (due to the ? appearing in the wrong place), they are: Bank Reconciliation, Invoices, Edit Settings, View Reports, Publish Reports, Lock Dates. For a complete breakdown of user roles visit http://help.xero.com/int/#Settings_UsersRoles.

Once a user is setup as an adviser they have new capabilities, which includes “Manual Journals”.

adviser capabilities

adviser capabilities

The “manual journal” window looks like this.

manual journal

manual journal


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chart of accounts

In case you didn't know, a chart of accounts is a listing of all your accounts (Income, Expense, Assets, Liability, and Equity). Some software I've reviewed doesn't allow you to see your entire chart of accounts on one page.

Something you should look for is if you're able to freely change and create your chart of accounts. This is a core need for accountants and bookkeepers.

Upon set up of Xero, you are able to choose Xero's default set of Chart of Accounts or import your own. Read more about importing your own chart of accounts and trial balance in the setup and walk through notes section.

For a full overview of Xero's chart of accounts, how they work, the default set of accounts, and system locked accounts, you can view Xero's help article at http://help.xero.com/int/#Settings_ChartofAccounts.

To access your chart of accounts go to Settings > Chart of Accounts. From there you can add accounts, edit settings, and look at the transactions for any one account.

chart of accounts

chart of accounts

I like how Xero gives you the ability to choose a default tax for an account as well as options to show it on your Dashboard, show it in expense claims, and enable payments (for what these options mean, visit this part of Xero's Chart of Accounts help page http://help.xero.com/int/#Settings_ChartofAccounts$BK_ChartofAccounts_Edit).

edit an expense account from chart of accounts

edit an expense account from chart of accounts

I'm thoroughly happy with Xero's chart of accounts capabilities. You can can also import and export them as well.


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reconciliation

Reconciliation, or the process of matching transactions in your bank statement to transactions in your accounting software, is a crucial step in the bookkeeping process. This is because it verifies the data you've entered into your books.

In Xero, you can start reconciling through many ways. Probably the easiest way is from the Dashboard. Find your bank account, click “Manage Account”, and then either “Reconcile Account” if you have an automatic bank feed set up or “Import a Statement” if you're doing a manual import of a statement.

This is what the reconcile window look like.

reconciliation

reconciliation

Below I give an overview of how the reconciliation in Xero works, but also have some extra (and sometimes redundant notes) in the setup and walk through notes section of this review.

I have to say that I'm impressed with Xero's reconciliation. I can say with confidence that it is by far the best implementation of the reconciliation process I've seen out of all the accounting software that I've reviewed. It even beats QuickBooks Online, which I rated quite highly in my review.

I like the side-by-side approach of Xero's reconciliation (as seen in the screen shot above). It was clear to me which were transactions found in my bank statement (the left side) and which were from Xero (the right side). It was also evident which was money spent vs. money received.

What I was enamored with was the ability to “Match”, “Create”, “Transfer”, or “Discuss” each transaction. At a glance, the default “Create” tab gives you the option to choose a name, account, description, and tax. But click on Add details and you'll get a full-fledged data entry form where you can split a transaction and customize taxes.

add details to a transaction in reconciliation

add details to a transaction in reconciliation

You can add splits for any type of transaction, whether it be money being spent or received (something QuickBooks Online can't do QuickBooks can now split transactions for both money spent and received).

If a line item in your bank statement matches a transaction in Xero, the transaction will be highlighted green and you can simply click on OK to accept it.

matched transaction

matched transaction

If you click on the “Find & Match” link, you'll get more options (like to change the suggested match and to add an adjustment (such as a bank charge)).

batch payment of multiple invoices in reconciliation

You can select a different match or add an adjustment

A transfer is for when you're moving funds from one bank account to another (such as paying a credit card from your bank account).

transfer

transfer

Xero's ability to memorize transactions previously entered and matched worked very well for me. For example, I entered a payment to an insurance company once and it was able to automatically suggest a correct transaction to create the next time a payment to the same insurance company showed up. It can even remember splits! If you have multiple transactions by a vendor that you think Xero should be automatically remembering (and isn't), try hitting the refresh button in your browser. That did the trick for me.

That's cool on Xero's part, but the icing on the cake was Xero's ability to create rules.

create a rule

create a rule

I set a rule up for owner's draws that I send as e-transfers to my personal bank account. My owner's draws usually have a $2.50 bank charge for the e-transfer associated with it. I was able to let Xero know that it should always take $2.50 off a draw for the bank charge and attribute 100% of the remainder of the money to my owner's draw. Worked like magic!

owner's draw rule

owner's draw rule

This ability to create rules is huge. The automatic suggestion of transactions by Xero (or other accounting software) based on history is cool and works a large part of the time. But, for those other transactions, I haven't seen a solution quite this powerful. QuickBooks Online has the ability to memorize certain transactions (as does some other software), but not like Xero's “Create Rule” does it.

The reconciliation feature in Xero, with its complete set of options for being able to handle almost any financial transaction from within it, makes Xero a powerful contender in the accounting software world. Again, in comparison to all the other accounting software I have reviewed to date, no one touches Xero's reconciliation for ease of use and functionality.


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importing and syncing data from banks

Being able to sync your bank data to your accounting data is one of the promises of cloud accounting. A lot of software thatís supported by the cloud has this feature.

Unfortunately, though, this automatic syncing of data doesn't always work. This issue has more to do with the bank than the software. This being the case, your accounting software needs to be able to manually import data as well.

Being able to import bank data is a big time saver, since it allows the software to semi-automatically enter data and match records for you (I say semi-automatically, since you always need to verify the data being entered).

I find the ability to manually upload bank statements to be especially crucial, since your automatic bank connection can only import data from a few weeks, to at best, a few months back. This means the majority of people will need the manual upload process to work, if only at the time they are setting up their books.

In Xero, you can both manually upload bank statements as well as connect to a bank feed (automatically have Xero talk to your bank and download data for you).

To connect to a bank feed, you go to Accounts > Bank Accounts and click on “Get Bank Feeds” (You can also access your bank accounts via the Dashboard window as well).

sync data with your bank

sync data with your bank

You then have the option to activate your bank feed by entering your credentials.

activate bank feeds

activate bank feeds

Once you enter your credentials, Xero attempts to connect to your bank.

connecting to bank feed

connecting to bank feed

To activate your feed, you need to select the correct feed (I only had one to choose from). The interesting option was the ability to choose what date you wish to import information from. I don't think I've seen this option to precisely choose a date in any other accounting software I've seen. I'm going to try and go back more than half a year, but somehow I don't think it'll work as most banks won't let you get more than 3 months of data through this type of method, but I'll soon find out.

part 2 of connecting to bank feed

part 2 of connecting to bank feed

And I'm right. I can only go back a few months. I do like how Xero gives me the exact date and lets me know the error. Some accounting software aren't so clear.

cannot import transactinos before a certain date

cannot import transactinos before a certain date

This is a perfect example of why you want the manual import option, which Xero does have.

To manually import a bank statement you click on the text link “manually import a statement” instead of the “Get Bank Feeds”.

manually import a bank statement

manually import a bank statement

Xero officially supports .OFX, .QIF, and .CSV formats (although I tried a .QFX and .QBO file and they both worked perfectly, which is quite surprising since they aren't listed). My manual import of data worked without a hitch.


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data import

Who likes manual entry? Well… no one, really. It's the analog way to get into the digital world.

More importantly, a lot of our information exists digitally, and the nice thing about digital, is that it's easy to copy and move around.

The ability to import data into your accounting software is something that is not only a nice-to-have, but increasingly becoming a must have. Why spend hours re-creating and re-entering data (and introducing errors in the process) that already exists?

Xero has the ability to import many different types of data (for the Xero help file with more details visit http://help.xero.com/int/#ImportExport):

  1. Bank Statements
  2. Budget
  3. Chart of Accounts (including trial balance)
  4. Contacts (vendors and customers)
  5. Fixed Assets
  6. Inventory Items
  7. Customer Invoices (Accounts Receivable)
  8. Vendor Bills (Accounts Payable)
  9. Manual Journal
  10. PayPal statements

I personally imported contacts, chart of accounts (with a trial balance), and customer invoices. They all worked quite well, if a bit finicky on getting the data just right. I'm happy to see the large selection of data that can be imported into Xero and wonder why other accounting software can't allow for the same (without having to develop software that plugs into their API – which Xero does allow. If you don't know what API is, I'll explain shortly).

All that data can be imported via CSV (and sometimes OFX, QIF, and TXT). This means someone can use spreadsheet software like Excel to import data, therefore making it accessible to the average user.

Now an API is short for Application Programming Interface. It's a set of specifications that software use to talk to each other. In other words, Xero, through it's API, allows other software to communicate with it. This means that a software developer can create a custom program to import and export data into and out of Xero. This can be very useful to users with specific needs that Xero doesn't address.

If you're a developer who wants to check out Xero's API, you can do so at http://blog.xero.com/developer/.

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data export

Data export is a big thing for me (and I suspect, lots of other people too), since I want to be able to take my data with me in case something happens (like the software company merges, goes out of business, or I decide to use another service). It's also good for people who like to play around with their numbers in a spreadsheet. Lastly, sometimes you want to export certain pieces of data (like say your customers) into another software application like CRM software (Customer Relationship Management).

Xero can export many types of data (for the Xero help file with more details visit http://help.xero.com/int/#ImportExport$BK_Export):

  1. Batch Payments
  2. Budget
  3. Chart of Accounts
  4. Contacts
  5. Credit Notes
  6. General Ledger Transactions
  7. Inventory Items
  8. Customer Invoices
  9. Vendor Bills
  10. Reports (any report like Profit & Loss or Balance Sheet)
  11. Statements (for customers)

I'm happy to say that I was able to successfully export the Chart of Accounts, Contacts, General Ledger Transactions, Customer Invoices, and Profit & Loss Report. With the selection of data above, I think Xero has the exporting functionality that the majority of small businesses would need. For more complicated exports, Xero does have the developer API (as noted above in the data import section).

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auto entry of data

There's a couple ways to talk about auto entry of data.

I believe most people relate this to the ability to connect to your bank (or upload a bank statement) and have your online accounting software automatically enter all the transactions for you.

Remember that it's not going to be 100% reliable, so you're going to have to verify each auto-entered transaction. You're also going to want to match your documentation (your proof) to that auto-entered data as well. Auto entry data is cool when it works.

Xero does this type of auto entry of data via their reconciliation process, as discussed in the reconciliation section of this review. Xero actually has one of the best (if not the best) reconciliation automation I've seen out of all the accounting software I've tested so far. Xero's ability to automatically connect to feeds doesn't seem as strong as QuickBooks Online, but once the data is in Xero (if not through the feed by the manual upload of a digital bank statement), it handles data the best.

The second way you can think about auto-entered data, is how much your software remembers transactions that you manually enter, like what expense account and taxes are associated with a particular vendor.

Xero, through the reconciliation process, can remember things such as an expense accounts and taxes associated with a vendor.

When you are manually creating invoices in Xero through the Accounts Receivable and Payable areas, Xero does not remember and auto enter data from previous transactions (at least not from my limited testing).

Something unique to Xero is the ability to create rules, which again, was discussed in the reconciliation section of this review. This is being able to customize how Xero processes transactions during the reconciliation process.

You can set up some automated tasks, such as repeating an invoice (as in the screen shot below). This is true for both customer and vendor invoices / bills.

repeating invoice

repeating invoice

Xero, with the ability to auto enter data from bank statements, create rules, repeat invoices, and import data from CSV (spreadsheets) gives the user multiple ways to do less data entry.


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reporting

Reporting is the end result of bookkeeping that most people are eager to see. Once you generate reports, you can finally see how much money you made, how much people owe you, how much you owe people, etc…

Xero has the following reports (as seen in the screen shot below) which can be accessed by clicking on Reports > All Reports.

reports

reports

Xero has all the basic reports that an accountant would want.

The reporting allows you to show actual vs. budget (providing you set up a budget), comparisons from one period to another (this month vs. last month for example), and customize your range of dates.

You can also set up “tracking categories” for more advanced reporting. With tracking categories “You can track the performance of areas in your business”, which is fully discussed in this Xero help article http://help.xero.com/int/#Settings_Tracking.

This can be useful if you want to track sales by geography (different countries) or by how you received the business (Internet, word-of mouth). The choice is up to you as to what you'd like to track.

Xero's ability to do budgets is something that will come in handy for a lot of small businesses. The budget manager can be accessed by going to Reports > Budget Manager.

budget manager

budget manager

Overall, Xero has a decent amount of reports, and most likely enough for any small business. The reports are also exportable which means you can customize and scrutinize them in spreadsheets if you like.


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taxes

If you're in the United States, this section is probably not much concern to you.

If you're from countries like Canada, UK, Australia, and New Zealand this will be of great concern to you. This is because these countries have value added taxes, such as VAT, GST, HST. Value added taxes need to be closely tracked for items sold and purchased.

Xero has full functionality when it comes to taxes. Xero's taxes can be set up by going to Settings > General Settings > Tax Rates.

tax rates

tax rates

For an in-depth Xero help article on tax rates, please visit http://help.xero.com/int/#Settings_TaxRates.

Basically you are allowed to set up multiple taxes and are also allowed to have component taxes (the combination of two taxes). You can also set up different taxes for items purchased vs. items sold. This helps with government reporting requirements.

Once you set up your taxes and need to report, you can do so by going to Reports > Sales Tax Report.

Without having to file sales tax reports with Xero's data, I can't say how well the system works. That being said, I can't see any obvious flaws in how it handles taxes.


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document attachment

Are you familiar with the terms “paper trail” or “burden of proof”? Both mean the same and they refer to the fact that you need to prove every transaction in your records. This is done most of the times through digital or paper receipts documenting your financial transaction. With this in mind, it makes sense to be able to attach this proof to every transaction, right?

You can of course keep a digital or paper based record system outside of your software program, but I've found it incredibly useful to have the proof attached to my bookkeeping software's record, since it now becomes very easy to double-check the document for something like a data-entry error.

Xero allows for document attachment on their accounts payable invoices (customer bills) and expense claims. The accepted formats are PDF, JPG, PNG, and GIF.

document attachment for accounts payable invoice

document attachment for accounts payable invoice

I tried the document attachment and it worked with no issues. You are able to download the attached document as well.

It's great that Xero has document attachment for accounts payable invoices and expense claims, but I would love to see this ability extended to every type of transaction. Furthermore, if all the attached documents were available as a single exported zip file, that would be even better. Since Xero can only attach documents to two types of transactions, it's really not of that much use to me.


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multi-currency

Multi-currency is something that's becoming ever more crucial in today's business world. Many people sell to and buy from multiple countries and collect (or pay) in more than one currency.

Xero has full multi-currency functionality, provided you pay for the large subscription plan (currently $39 a month). You are both allowed to send or receive invoice and payments in multiple currencies. You can also set up bank accounts in multiple currencies.

Exchange rates are taken from XE.com on a daily basis in order to calculate the value of foreign currencies into your home currency (base currency). You are able to change the exchange rate manually if you like.

If you choose multi-currency in Xero, it will set up three currency system accounts called Bank Revaluations, Unrealized Currency Gains, and Realized Currency Gains in order to continuously provide an accurate picture of your company's finances in your home (base) currency.

For more information on how multi-currency in Xero works please see their help file at http://help.xero.com/int/#CurrencySettings.


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invoicing

Xero has invoicing capabilities that can be found at Accounts > Accounts Receivable > New Invoice.

invoices

invoices

As seen above, you have the regular invoice categories, such as To, Date, Due Date, Invoice #, Reference, Item, Description, Qty, Unit Price, Disc %, Account, Tax Rate, Subtotal, Tax, and Total.

Some things you can do with Xero in addition to a basic invoice are:

  1. Set up invoices that await approval. This can be a good double-check before invoices go out.
  2. Set up re-occurring invoices. This is useful for businesses that have repetitive invoicing week after week or month after month.
  3. Add tracking categories (not seen above). This will let you measure specifics on how you are spending or receiving money. This is covered in more detail in the Xero help file at http://help.xero.com/int/#Settings_Tracking.
  4. Send statements comprising a customer's invoices and payments within a certain time period
  5. Import invoices (as discussed in more detail in this Xero help file http://help.xero.com/int/#ImportExport)
  6. The ability to sort invoices by status: all, draft, awaiting approval, awaiting payment, paid, repeating
  7. The ability to customize invoices by going to Settings > General Settings > Invoice Branding. You can either edit settings from within Xero (as seen in the screen shot below) or download a custom .docx (Microsoft Word Document) template which you can modify and upload back to Xero to use as your invoice template.
customize invoices

customize invoices


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payment processing

Payment processing is the ability to send an invoice out to a customer and have them pay via credit card, debit card, PayPal, or some type of online method.

Xero is able to add a PayPal link to all your invoices. You can do so the same way that you customize an invoice, by going to Settings > General Settings > Invoice Branding. When you go to edit an invoice template, you'll see the option to enter your PayPal email (as seen in the screen shot below).

add PayPal email to invoices

add PayPal email to invoices

For more on accepting PayPal payments on invoices please visit this Xero help file at http://help.xero.com/int/#Q_OnlineInvPayment.


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payroll

There's special taxes and reporting requirements associated with payroll. Can the software handle this for you? If it can't, is there a way to smartly input these?

Being able to do your payroll through your accounting / bookkeeping software is nice if you have employees. Calculating payroll manually is doable, there are online calculators that can help you. However, the reason you want to use software for your bookkeeping is so that you don't have to do things manually.

Xero kind of does payroll, but not really (unless you're in Australia, then Xero does have a fully integrated and functional payroll system). Xero's payroll is called Pay run. Pay run is essentially a nice interface to enter your payroll data, but it doesn't calculate taxes for you. You still need to manually do this. For more info on Pay run, please visit the Xero help site at http://help.xero.com/int/#Accounts_Payrun.

While Xero doesn't handle payroll internally, it does work with outside software providers who specialize in payroll. You can find the list of payroll providers here http://www.xero.com/add-ons/payroll/. For some reason it doesn't list ADP (for those in the United States) even though there's a press release about the integration here http://blog.xero.com/2012/07/adp-online-payroll-meets-xero-online-accounting/. Update: The payroll add-on with ADP does show up on the add-ons list if you are viewing the US version of the site (I was viewing the Global version).

So, Xero does have payroll capabilities, but I'd recommend double-checking what the payroll situation is like in your country and make sure that Xero's ability to handle payroll is what you need.


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inventory

Inventory has to be handled and accounted for in a special way, can the software handle this?

Being able to track inventory is an essential function for any business that sells products that they need to keep track of.

Xero doesn't have any ability to track inventory. Xero does integrate with a few online inventory managers. The latest list can be found at http://www.xero.com/add-ons/inventory/.


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integration

The power of software is the ability to easily share and process data across various applications. You may currently be using software for CRM, payroll, invoicing, e-commerce, etc. Whether your online accounting software can import that data may be a crucial deciding factor for you.

In other cases, sometimes your online accounting software wonít do everything you want it to do, so the only way to get a feature is to integrate your online accounting software with software that provides what you want.

Xero has a full roster of software that it integrates with. You can find the most current list at http://www.xero.com/add-ons/. In comparison to other accounting software, Xero has a large list of add-on apps and integration partners.

There's everything from CRM, to eCommerce, to Payroll. An interesting service I found in the add-ons was a conversion service called Click 2 Convert. It's a human based service that converts your QuickBooks or MYOB file into Xero. I know one big hurdle with going to the cloud is being stuck in an existing software package. If you are using QuickBooks or MYOB, this may be a helpful service for you.


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mobile app

It should be noted that any online accounting software can be accessed via your web browser, regardless of your device. However, when an online accounting software provider has a device specific app or a mobile version of the site, it's designed to work well for that purpose. If youíre planning on accessing your books through a mobile device, check to see if what youíre about to buy is specifically designed for it.

Xero has a mobile app specifically for the iPhone, which you can read all about at http://blog.xero.com/2011/08/xero-touch%C2%A0%E2%80%93-accounting-app-for-mobile/. As of this moment, they are working on an android specific app.

Something neat that the iPhone app can do is use the camera to take pictures of receipts and attach them to expenses.

Xero also has a mobile specific site at http://m.xero.com/ which you can use with any platform. This mobile site is a scaled-down version of Xero, so if you need the full version, you'd go to the regular Xero web address of http://xero.com.


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other features

This is a section that covers features or functionalities that didnít get their own section.

Contacts

The contacts in Xero seems much more powerful and flexible than other accounting software out there. First off, you can create multiple groups and have contacts be categorized in more than one group at a time. This becomes useful as Xero allows you to create the same invoice for a group of contacts. This would be a huge time saver and feature for someone who does re-occurring billing to a large set of customers who are purchasing the same thing.

Another nifty thing about contacts is that it displays the accounts receivable due and overdue.

contact receivables due and overdue receivables

contact receivables due and overdue receivables

User Roles

In Xero you are allowed to set up up different access and user roles to different people. Xero's help article covers off all you need to know about its user roles http://help.xero.com/int/#Settings_UsersRoles. I won't write much more about user roles since there are too many variations to simply cover off here and I would hate to get the details wrong.

Beyond restricting access of certain users, Xero also allows you to invite users to view your books (such as a financial adviser or Xero Customer Care).

Expense Claims

Xero has a window for processing Expense claims, which are what you would use to reimburse people for business expenses they paid for using personal funds. To access expense claims, you would go to Accounts > Expense Claims.

expense claims

expense claims


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support / help documentation

Customer support is a crucial feature for some users, especially those who are not as comfortable with software as others. I tend to just look for documentation that already exists, since I don't like waiting on support to potentially help me out.

I'd rather see great help / documentation than great support (although I'm sure others would have their priorities reversed). Having information that is easy to access and easy to understand is something that's nice to have.

Xero's help documentation and organization is the best I've seen out of all the software I've reviewed to this date, as mentioned before in the user interface section of this review.

I found that the answers to my questions were almost always contained with the detailed Help Centre Guide. If the answers weren't there, I was more than likely to find the answer in the Help Centre Community (user forums).

help can be found in multiple places

help can be found in multiple places

Help is always available on the top right hand of the screen. You can search any topic directly from the search box (results seen in the screen shot below).

When you are starting out you also receive help in the form of green boxes on the top of each screen. They will give you a short description of how the window works and links to relevant help topics. You can close these “Getting Started” guides at any time.

You also have function specific help in the form of small question marks (like the one seen beside “Bank Accounts” in the screen shot above). This will reveal a pop-up with information.

searching help

searching help

Clicking on the results (as seen in the screen shot above) will take you to the appropriate article in the Help Center. If the answers aren't what you are looking for, you can go to the Help Center (screen shot below) for more results are ask a question to Xero Support.

help center

help center

question mark pop up

question mark pop up

From the Help Center you can access the Xero Community (or in other words user forums).

xero community (user forums)

xero community (user forums)

For real-time support (email, phone, chat) I can't comment much on this, since I try to avoid contacting support while doing reviews. I have had a few conversations with Xero staff via email and twitter and they seemed fairly responsive.

I didn't see any phone numbers for support on Xero, so I'm assuming that any support you do get is email based.

contact support

contact support


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improvements

The important thing to consider when evaluating accounting software is to see whether it has the features or functionalities you need, and to decided if you can live with (or work around) the missing items. Here's a few things I think Xero could improve upon:

  1. Xero, you've implemented document attachment in certain areas (accounts payable invoices and expense claims), so why not do it for all your transactions? And as mentioned in the document attachment section of this review, if all the attached documents were available as a single exported zip file, that would be even better.
  2. As mentioned in my review of QuickBooks Online, I think the interface and work flow of Xero could be a little more simplified. I would rather see a money in / money out based interface. As it is in Xero, I can use Accounts Payable, Expense Claims, or Spend Money to take money out of a business. They all have their function and I understand it, but I think the learning curve would be easier with a simpler interface, a la Kashoo. That being said, I can also see how these specific buttons can be useful when multiple people with specific tasks are using the software. They only need to learn a button or two to do their job.
  3. For data export, it would be nice to have an “Export All” button. This would be much better than having to search around to export many different areas where data is kept in Xero.


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country it’s made in

In some ways, the country where the software is made shouldn't matter. However, I think for accounting software, it matters more than with other types of applications. This is because the people in their own country should (and emphasis on “should”) naturally design the software to fit the needs of their local tax and accounting requirements better than software made in another country. I've noticed this especially when it comes to taxes and payroll.

Xero was founded in New Zealand but now has offices in Australia, United States, and the United Kingdom as well.

Being a Canadian, I can really notice Xero's global approach to bookkeeping in comparison to US based services I have seen. This shows in the value added taxes, payroll integration, and multi-currency that is being offered. One thing I think QuickBooks Online got wrong was to have too many differences between their localized versions. This caused the non-US versions of QuickBooks Online to be significantly inferior. Features that are available in the US version are not for other countries and vice versa.

With Xero's approach, if you don't want multi-currency or value added taxes, you simply don't use those features. I prefer this add or take away approach in comparison to completely different products (like QuickBooks Online).


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price

Price is always an important factor for businesses. One thing I think you should consider is how much does it cost you to not pay for what you need. Or in other words, how much time (whether it's your “free” time or someone's paid time can you save by using the software).

The pricing for Xero can be found in the screen shot below as well as at http://www.xero.com/pricing/.

Please note that the screen shot is for the global edition of Xero. Pricing may vary depending on which edition you choose (the Australia Edition has payroll integrated so costs more for example).

pricing

pricing

Realistically, I think most business will need to use the medium or large plan, so it's $29 to $39 a month, which is not bad for the time and effort Xero can save you.

You can also try Xero for free at the start. You get 180 days to try with the limitations of 5 new invoices and the ability to reconcile up to 50 bank statement lines.

If you are a non-profit or not-for-profit entity, Xero will give you 25% off the sticker price. Check out http://blog.xero.com/2012/02/making-accounting-easier-not-for-profits/ for their blog post about this.


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recommendation

I have to say that I'm surprised at how much I liked Xero. I had demoed Xero a few months back using their Demo Company (which you can access after signing up for free) but there didn't seem anything to be excited about. The devil was in the details of course (and that's why I like to do a full test before forming opinions).

The first part of Xero that I did enjoy was the setup process. Xero has a custom screen that takes you step-by-step setting up your books for the first time. There is guided help every step of the way.

set up guide

set up guide

It feels like it's getting old hat for me setting up a new set of books in accounting software, so I don't know if this step-by-step process would be as easy for a beginner or not. As an experienced user, I appreciated the process. This is the best setup process out of all the accounting software I've reviewed so far.

The reconciliation in Xero is also top notch and the best I've seen so far. Since reconciliation has always been the most nerve racking part of bookkeeping for me, this is a major plus. However, it's not just the reconciliation itself, but how Xero manages the data from bank statements (whether through a feed or imported bank statement). The way Xero does it – with its automatic matching and the ability to add adjustments, split transactions, and create matching rules – cuts down on time, errors and frustrations.

Xero has a strong selection of apps that fill in the gaps for functions that Xero doesn't currently handle. Its API (which allows software developers to develop customized software to work with Xero) is ensuring that Xero is able to add functionality faster than it could on its own.

I've read in Xero's Community Forum that it does have limitations on the size of business it can handle, since it was originally designed (and still is) for small businesses. The limitations are listed out at http://blog.xero.com/developer/api-overview/, but here's the max size of business Xero can reliably handle:

  1. 200-500 invoices a month
  2. 1,000 bank transactions a month
  3. 1,000 inventory items
  4. 5,000 contacts

I have no idea of the limitations of other online accounting software, but this may be something you need to consider if your business has a large amount of transactions a month.

If you're considering switching to the cloud or if you're setting up our accounting software for the first time, I'd highly recommend giving Xero a spin. If Xero is right for you or your business depends on the complexity of your needs , and to some extent, your country.

Other accounting software

If you're wondering about alternatives, I'm currently doing an online accounting software review and comparison. Currently I've done reviews of the following accounting software:

  1. Kashoo review
  2. Wave Accounting review
  3. LessAccounting review
  4. Quickbooks Online review
  5. Xero review
  6. FreshBooks review
  7. FreeAgent Review


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setup and walk through notes

These are my notes and observations as I use the software. How I set things ups, problems I ran into, solutions I found.

signing up

Signing up to Xero is a straight-forward process and no credit card is required. As you can see in the screen shot below, you can try for up to 180 days (with the limitation of up to 5 invoices and 50 reconciled items). I feel that's enough time and transactions to get a sense of whether or not you like the software.

xero offers a free trial

xero offers a free trial

setup guide

Xero has done a good job of creating an easy-to-follow setup process. It has a setup guide found in the “Xero business Help Centre” found at http://help.xero.com/int/#XeroGettingStarted.

xero setup guide

xero setup guide

I like how the setup process in Xero is organized. It's takes you step-by-step through everything you need to do to setup your books. It also has videos that take you through each part of the process. In fact, it's so good that I'm not going to show the steps from “Organisation Settings” to “Tax Rates”. These are covered well in the Xero set-up guide, which again, is here http://help.xero.com/int/#XeroGettingStarted.

xero setup process takes you step-by-step with plenty of documentation

xero setup process takes you step-by-step with plenty of documentation

Another thing I like about the setup process is how you get these little pop-out windows when you click on their “Common setup questions” links.

pop-out box for common questions

pop-out box for common questions

Importing a Trial Balance

Xero can import trial balances. They even give you a sample trial balance to work off of.

Once I imported my trial balance, this is what I saw.

importing a trial balance

importing a trial balance

What this screen was missing for me was the breakdown of each account imported and the balance. Since I knew my trial balance numbers were balanced, and therefore I shouldn't be seeing adjustments, I have -$10,387.11 worth of transactions that were not imported correctly.

After fixing the 4 accounts that could not be imported due to errors (I didn't use the correct “type” of account according to Xero's naming convention http://help.xero.com/int/#gs-Settings_ChartofAccounts$BK_ChartofAccounts_Type), my confirmation screen changed slightly.

import trial balance - try 2

importing a trial balance - try 2

You may have noticed that my numbers have changed. My credits are now correct, at 166,605.52. It's my debits that are incorrect, thus making the Adjustments account incorrect. Since I have no way of knowing which balance did not get imported correctly, I click on confirm and hope that I can correct this later.

After clicking on confirm, I see this confirmation screen. I notice that my credit cards did not show up here (I used the “current liability” type when importing). I will try to change the type of the credit cards to “bank” to see if this will make them show up on the “confirm your bank & credit card accounts” screen.

confirm your bank & credit card accounts

confirm your bank & credit card accounts

After re-importing my trial balance, I now see that my credit cards show up as being able to be categorized.

confirm your bank & credit card accounts - try 2

confirm your bank & credit card accounts - try 2

After confirming my bank & credit card accounts, I then see the “confirm your chart of accounts” screen. When I click on my Vancity Bank account for more information, this is what I see.

confirm your chart of accounts

confirm your chart of accounts

At this point in time, I'm able to type in the name of my bank into the “Your Bank” field to see if my bank has automatic feeds available. My Vancity bank does (although I find out later on that Xero is not able to connect to my bank)!

bank feeds available

bank feeds available

If you have a PayPal bank account, automatically importing data is slightly different than a regular bank account.

paypal bank feed

paypal bank feed

By clicking on “Set up automatic PayPal import” I receive some more options to enter my PayPal email address and the date from which I want to start importing data.

paypal bank feed automatic import

paypal bank feed automatic import

Xero has a help file on the entire setup process for PayPal found here http://help.xero.com/#BankAccounts_PayPal.

When I go to setup my bank feed for my credit card, I find out it is still in beta mode.

vancity credit card import still in beta

vancity credit card import still in beta

I've found that my credit union accounts tend to not work with automatic bank feed imports, so I kind of expect this to happen. As long as I can manually import my electronic data, it's ok with me.

Once I verify that all my accounts were imported, I go to the next screen, which is to verify the account balances of my imported accounts.

confirm account balances

confirm account balances

I'm glad to see this screen at this stage. Now I can verify my balances and see which ones did not import correctly.

I find out that my “Salaries and Wages” account which I categorized under “Wages Payable” became an Xero system account, causing my balance to not be imported. To correct this, I created another “Salaries and Wages” account as an expense and was able to add another line item to the account balances. My adjustments problem is almost solved!

The last issue with importing my account balance was that my PayPal US account balance was off by $0.01. This was due to conversion from US funds to Canadian funds. I let Xero categorize the difference as an FX gains adjustment (FX stands for “foreign currencies”).

FX gains adjustment

FX gains adjustment

Dealing with Unpaid Invoices and Bills

After confirming my account balances, I am now taken to a screen to enter my invoices that are still receivable (for which business still owe me money for) as of my startup date with Xero (which for me is January 1st, 2012).

For a complete walk through of why and how to enter your invoices pre-conversion date, please visit this page on the Xero Business Help Centre http://help.xero.com/#gs-Setup_HistoricalInvoices.

add unpaid invoices as of start date

add unpaid invoices as of start date

After I add all the invoices, I get a green check mark and I'm good to go onto the next stage of this setup process.

If I had outstanding “Accounts Payable”, I'm assuming I would have went through the same process as I did for entering all unpaid invoices as of the start date.

Setup is complete!

setup complete!

set up complete!

I think it's important to note that once you click on “Finish”, this finalizes all your initial set up work. So, like Xero says (like in the above screen shot), if you're unsure of anything, don't click on Finish just yet. I'm fairly confident with everything I've set up so far, so I click on “Finish”.

This set up process has been the most comprehensive, organized, and well documented out of all the setups I have undergone for all the online accounting software I have tested so far. I love the step-by-step process and that at every step of the way there were always links to relevant help articles as well as videos.

Import Customers and Vendors (Contacts)

To import contacts, go to Contacts > All Contacts > Import. In Xero, both customers and vendors are in the contacts group. This is the contacts import screen.

import contacts

import contacts

After downloading their template and copy and pasting my data in, I'm ready to import my file. Upon importing, I get this error message.

import contacts error

import contacts error

The error seems straight forward, I have a non-email address in the email address field. I correct this and try again. The import goes smoothly.

import contacts success

import contacts success

A problem I'm having is that I can't add these imported contacts to my “Customers” group. Clicking on “Add to Group” only gives me the option to add to a new group. There's no options for existing groups (customers or vendors).

After looking into this on both Xero's Business Help Centre's “Guide” tab, I then tried the “Community” tab. There I found the answer I was looking for https://community.xero.com/business/discussion/55251/. At the moment, you can't import or add contacts to the “Customers” or “Suppliers” groups.

Currently in Xero a Contact becomes a customer or supplier when you enter an invoice for them.

A small thing that is not a big deal since you can still create invoices or bills for any contact (they don't have to be a customer or supplier).

Dealing with Uncleared (Unpresented) Checks

One issue that a majority of people who use checks to pay bills will run into when starting to use Xero (or any other accounting software) for the first time is that their bank balance may not match their bookkeeping balance because of checks that have not yet cleared. Xero calls these unpresented checks (In North America we call these uncleared checks).

Xero has a full explanation of what to do in this situation http://help.xero.com/int/#Q_ConversionBalances.

To quickly summarize, what you do when setting up Xero is create a current liability account called “unpresented (or uncleared) checks”. Add up all your uncleared (unpresented) checks and this would make up the balance of your unpresented checks account. You deduct this total amount from the balance of your bank account. Here's an example.

$10,000 in bank according to bookkeeping records

$14,000 is actually in your bank (because $4,000 in checks have not been cleared yet)

$4,000 are uncleared checks

In this case, your new Xero accounts would be:

$10,000 bank

$4,000 unpresented (uncleared) checks

= $14,000 actually in your bank

As the checks are cashed (cleared) do the following according to Xero's instructions:

Create a Spend money transaction that is coded back to the Unpresented Checks liability account (created above). Do not code this check to the original expense (or revenue) account as that was done in the previous year.

Once all your checks are cleared, you never worry about the unpresented checks liability account again.

Dealing with undeposited funds (uncleared or unbanked)

When you switch over to Xero from another bookkeeping system, you may have checks that you have received but have yet to be deposited in your bank account. This means you'll have an undeposited (uncleared or unbanked) account you need to create in Xero when setting up your accounts. Here is Xero's explanation of how to do so http://blog.xero.com/2008/08/manage-uncleared-funds/.

Basically you create an undeposited (uncleared or unbanked) funds account upon set up. When you're reconciling your books in Xero, you attribute the deposited funds to your undeposited (uncleared or unbanked) funds account when you actually get around to depositing the money into your bank. Fairly straightforward.

Reconcile Accounts – Importing Bank Statements

To import my bank statements, I clicked on the “import a bank statement” from one of my accounts found in the dashboard. An error I ran into was that my books were closed as of my start date (or as Xero calls it, my “conversion date”). This means I couldn't import my visa statement ending January 19th, 2011 since it contained some dates from December (which fall in my closed period).

manually importing a bank statement

manually importing a bank statement

To get around this, I went to Setting > General Settings > Users. There I found my name and clicked on it. I discovered I was set up a “standard user”. I switched myself to a “financial adviser”.

financial adviser

financial adviser

This solved my import issue as the “Financial Adviser” role allowed me to modify transactions before the “conversion date”.

After I imported my bank statement, this is what I'm shown on Xero's reconciliation screen.

reconciliation

reconciliation

I like how Xero has set up the reconciliation process. On the left hand you see the transactions as appears on your bank statement. On the right hand you have a chance to either match, create, transfer, or discuss the transaction in your Xero records.

As you see, it automatically highlights any matching transactions, such as my Honda Finance payment I entered into Xero beforehand.

The cooler thing is that once I matched the Honda Finance payment once, Xero automatically suggests the payment for me the next time it sees a payment to Honda in my bank statement.

auto suggestion payment

auto suggestion of payment

A problem I've had with other software is the splitting of transactions when doing a reconciliation. Xero handles this beautifully for payments. You click on the “Keep as 2 lines” text link (which is sometimes labeled “add details”). It'll give you the screen as shown in the screen shot below.

split transaction in reconciliation

split transaction in reconciliation

Xero allows you to enter as much detail as you want, including any taxes that you paid. This is huge, especially since Xero can also remember the splits.

Even better about the splits is that you can do it both for money spent as well as money received. QuickBooks Online can do splits for money spent, but not for money received. QuicBooks Online also can't calculate tax like Xero does.

Now something that Xero has that is looking ultra-geeky, ultra-cool, save-you-tons-of-time is the “create rule” text link option.

create a rule

create rule

Looking at the conditions you can set, it seems like it can be a very powerful tool. Being able to set up fixed values and ratios can be so useful for variable loan payments. The problem I've always had with QuickBooks' memorization is that the rules weren't flexible enough to accommodate numbers that fluctuated. QuickBooks also couldn't deal with names store names that were slightly different, like Home Depot #67 and Home Depot #89.

With Xero, you can set your condition to equals, contains, starts with, or is blank. That covers off a lot of the bases of how you'd like to process transactions. Furthermore, you can add multiple conditions. This has the same functionality as a powerful search engine or filter.

set condition

set condition

For a credit card payment, you use the transfer tab.

reconciliation - transfer to credit card

reconciliation - transfer to credit card

Receiving Payments

To receive a payment for an invoice in Xero you need to open up the invoice. http://blog.xero.com/2009/01/reconcile-multiple-payments-to-multiple-invoices-139/. For each invoice you want to receive payment for, you need to open up each separate invoice and add a payment.

indivual payments for each invoice

indivual payments for each invoice

This is unfortunate since other accounting software can allow you to receive a payment for multiple invoices in a single transaction. This also makes the reconciliation process more straight forward as you'll have one payment in your bookkeeping records to match to your bank statement. The Xero way is that for 5 invoices you'll have 5 payments that need to be matched to one payment as seen in your bank statement. Xero allows you to match multiple payments in your bookkeeping records to one payment in your bank statement records, which is good, but I still don't like the process. Very clunky and adds a bunch of extra work.

find and match for payment of multiple invoices

find and match for payment of multiple invoices

batch payment of multiple invoices in reconciliation

batch payment of multiple invoices in reconciliation

As you can see, I had originally wrote that you couldn't enter a single payment for multiple invoices. I was wrong. You can do this in the reconciliation window by clicking on the “find and match” link. This will bring up possible invoices that you can match the payment to. Select all your invoices and you're good! I'm glad I was wrong on this one.

The reason I thought you couldn't enter a single payment for multiple invoices was that I had watched this video http://blog.xero.com/2009/01/reconcile-multiple-payments-to-multiple-invoices-139/), which was about multiple payments for multiple invoices (I was looking for which was a single payment for multiple invoices). However, in this Xero help file http://help.xero.com/int/#Payments_PayInvoice, it also doesn't let you know you can receive a single payment for multiple invoices using the reconciliation window. It still directs you to receive  payments for each invoice.

So, I'm glad I found at a faster way to accept a single payment for multiple payment for invoices. Still too bad that it's not clearly document in Xero's help files. It also wasn't intuitive to figure out, since no option to receive payment for multiple invoices was given from Xero's “Accounts Receivable window” (which is found under Accounts > Accounts Receivable > Awaiting Payments).

would love if there was an "add payment" button for these multiple invoices

would love if there was an "add payment" button for these multiple invoices

One thing that is a nice feature of the accepting payments via reconciliation is the ability to add an adjustment, such as for a bank charge (or something like PayPal fees).

add adjustments to reconciliation

add adjustments to reconciliation

This adjustments optoin is super useful to me as I have these little adjustments happen to me all the time. Nice work Xero! My only issue is that you don't allow for multiple adjustment lines (for example, I wanted to do adjustments to take off both PayPal fees and Bank service charge fees). It would be nice to be able to add multiple lines of adjustment (and yes, you do have a minor adjustment line that can be added, but there's no way to choose which account to code that adjustment to). I can see the ability to add multiple adjustments necessary for people who sell online and have several points of adjustments, like an eBay selling fee, PayPal selling fee, shipping fee, etc… Those are items that you don't necessarily want to put on an invoice but do need to account for.

What I wasn't able to do, and if I'm wrong someone please correct me, is accept a partial payment through the reconciliation window. I was only able to accept a full payment. For example, if there were an invoice for $5,000 for which only received $2,500 was received. You can find the $5,000 invoice through the “find and match”, you can even select it, but you can't change the amount to only accept $2,500. To accept the partial payment you have to go through Accounts > Accounts Receivable > Awaiting Payments. Not a big deal, but allowing partial payments would be a nice addition.

Update: Xero has pointed out an article on accepting partial payments at http://help.xero.com/#BankAccounts_Details_Reconciliation$BK_BankRec_PartPay. I did see the split option appear for certain transactions, but not for others. I don't know whether there was something I was doing wrong, a temporary glitch with Xero, or it was a certain type of transaction that it wouldn't work for. In any case, I tried redoing a reconciliation with a partial payment and the split worked well. Below I put a screen shot (taken from Xero's help guide) of what the option to split looks like.

partial payment in a bank reconciliation

partial payment in a bank reconciliation

A nice feature is the ability to delete a statement line from your bank statement. This is useful in the case where you'll already reconciled something but it shows up on your bank statement. For my situation, I had entered some credit card transactions into QuickBooks in 2011, but they didn't show up on my credit card statement until 2012 (credit cards can take a few days or even a week or two to post a transaction). This caused problems since my imported bank statement contained that transaction already entered into QuickBooks.

Fixing it was easy in Xero. I simply put my mouse over the X next to the bank statement line and the whole transaction turned red (as seen below). I deleted the transaction and that was it.

delete statement line

delete statement line

The last thing that I found interesting was how Xero handled income I received via PayPal.

paypal fee separated

paypal fee separated

I liked the fact that the fee and the payment were separated. This PayPal fee always caused headaches when reconciling my books with other software systems. I'd have to do more than the one transaction to see how this works on a larger scale.

And that's the end!

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26 Comments


@Xero
August 27, 2012, 11:48 am

Hi Greg – what a great and thorough review! We and everyone considering using Xero thank you. We really appreciate seeing how people use Xero – the bits they like and don’t like so your detail is really useful. The team are digesting it now!

On my first read through, a couple of things I wanted to bring up:

- would be interested to know why you didn’t like the demo organisation? You mentioned you weren’t that impressed first time around, that you really needed your own data? Is there anything we could do to improve it?

- you mentioned Xero needs better overall searching, we’re hearing this a bit and have a thread going in our Community https://community.xero.com/business/discussion/55… – it’s definitely something we want to get to so thanks for mentioning it.

- you’re right we don’t have a full inventory management system – we’re leaving that to the experts for now while we concentrate on building the accounting engine. Having said that, you can use our inventory items http://help.xero.com/#Settings_PriceList which at least give you quick entry on invoices for items you commonly sell and allow you to do some basic purchase and sales tracking of your items. In time we’re definitely looking at what we can offer.

- one of your comments about bank reconciliation was that you couldn’t accept a part payment for an invoice on the reconciliation screen – actually you can do this by using ‘split’ link on the ‘Find & Match’ list of invoices – here’s the step by step help here http://help.xero.com/#BankAccounts_Details_Reconc… hope that does the trick!

Thanks again!

^OG

    smallbizdoer
    August 27, 2012, 12:14 pm

    Hey @Xero,

    I think the reason I wasn't wowed by the demo was because it didn't see to offer anything better than what I was used to. It seemed like another accounting software package. Understanding the work flow and terminology takes more than a few minutes (as with most accounting software).

    One thing that impressed me about Xero was the set up process and guide. I thought it was very user friendly and helped guide a new person through. The entire help guide in general is very through and easy to search and navigate. There weren't many things I couldn't find in there.

    What really impressed me was the reconciliation process. Xero has all the ease of use and flexibility I could want while doing reconciliations.

    The set up and reconciliation are two things I couldn't really fully experience with a demo company. I think you have to experience how the software works with your own data and situations to see how it handles. That is why I do these in-depth review. I feel looking at accounting software for 30 minutes and making a judgement isn't fair.

    I do understand you have to focus on certain areas and leave other areas (at least for now) to others. I do like the fact that you seem to have a robust selection of add-ons and partners. I realize you have items, which of course saves time, but some companies simply need inventory management. I didn't test the add-ons to see how they work and integrate with Xero, but I do know this would be a requirement for certain companies.

    For the partial payment, I was able to see a split for certain transctions, but it wasn't available in all situations. I'm trying to remember what the exact situation was. I know I was playing around for 10-15 minutes with it but ended up simply accepting payments through the accounts receivable part of Xero. I've updated the article to mention this and added your link to that section.

    Thanks for the comment!

      @Xero
      August 27, 2012, 6:20 pm

      Fair enough, and totally reasonable comments. It's really good to get your feedback on the set up process as well, we do wonder if the steps and guidance are overwhelming and actually put people off getting going with Xero – it's good to hear that's not always the case! Even though you can get to all parts of the setup process any time in Xero it's less alarming to get it right from the start and not have your balances out of kilter from the get go :)

      Another thing I wanted to pick up – you're right, we do have an integration with ADP for our US-based customers. The reason you didn't see it when you visited http://www.xero.com/add-ons/payroll/ was because you were viewing the global version of our website (assuming you visited that page from Canada) so you were automatically presented with add-ons available to our global customers. Using the region switcher at the bottom right of screens on our website you can view what's available in other regions.

Gayle Buchanan
August 27, 2012, 4:33 pm

Ditto OG …. what a thorough review!
My recent post Xero Investor Presentation July 2012

Fee Bonhote
August 27, 2012, 10:53 pm

Thanks Greg for the very thorough review. As I'm new to Xero (set up first client last week), its nice to see my set up conversion from MYOB was correct. Appreciate that you have gone through each step from beginning to end thoroughly as this is a good guideline for all new customers to Xero.

Alexander Kohl
August 27, 2012, 11:41 pm

Great and thorough review. Two things I noticed: the deleted bank transactions are available as well. If you search for them within the bank transactions screen they show up.
Regarding accrual and cash accounting, it is possible to only create transactions from the bank feeds, which effectively gives you cash accounting.
Looking forward to reading your other reviews.
Alexander
My recent post Is It All a Big XeroCon?

    smallbizdoer
    August 28, 2012, 9:20 am

    Hi Alexander,

    Thanks for the comment.

    You are referring to transactions from the bank statement that can be restored if deleted, correct (these are the imported bank statement transactions under the "bank statements" tab). You are absolutely right.

    What about the actual transactions entered into Xero (as found under the "Account Transactions") tab. As far as I can see, once you delete them they are gone. I just did a double-check to confirm that this is the case, but please correct me if I'm wrong.

    Absolutely true you can do the cash method if you enter transactions in a certain way. Thanks for that.

      Alexander Kohl
      August 28, 2012, 4:11 pm

      The deleted transaction is not as easy to find, but it is in the Journal Report as a reversed transaction (http://i.imgur.com/S8oOg.png). By limiting the date range of that report you can use the browser search function to find the contact name.
      Alexander
      My recent post Is It All a Big XeroCon?

      smallbizdoer
      August 28, 2012, 8:18 pm

      Thanks for the screen shot. What I meant was that you can't undo a deleted transaction (unless it's from a bank statement). But, like you showed in the screen shot, you can see the history of deleted and restored transactions in the Journal Report.

Earl Rudolfo
August 28, 2012, 5:14 am

Great job with the Xero review. Very thorough and useful for anyone considering/evaluating Xero.

One feature I like that's a real time saver is fast cash coding – http://blog.xero.com/2008/12/fast-cash-coding/

Yes, Xero is definitely a sleek/slick online accounting app and really is a value add to any small business wanting to use online apps.

So nice to see another Canuck who's crazy about Xero -:)

My recent post Is your Business Financial Picture worth a 1000 words …. or more?

    smallbizdoer
    August 28, 2012, 9:25 am

    Hi Earl, yeah, I can see how some people could really breeze through a lot of entry fast with the "cash coding" feature, thanks for pointing that out!

gill
September 20, 2012, 10:31 pm

what a great review. what I find to be curious is the pricing: $29USD yet the aussie equivalent is $49? as a very small, start up I can't justify that. I'm using saasu which is only $9/month and gives me 50 transactions which is adequate. I'm not loving Saasu though.

    smallbizdoer
    September 22, 2012, 11:43 am

    Hi gill,

    Thanks for pointing this out. I didn't realize this. I believe the difference in price is due to the fact that the Australian version has integrated payroll. Nice feature for sure, but too bad it means a much higher price for those that don't need that feature. I've updated my review to make a note of the higher price for Australians. Thanks!

GHC
October 8, 2012, 9:05 am

Hi Greg, Thanks for your reviews. I've just skimmed the whole set of reviews you have posted (mainly reading the Recommendations section & comments) and am mightily impressed at your thoroughness & ease of readability. I'm a small business owner who doesn't really want to have to do the BkKpr/Accnts part of the Owner/Operator package! I'm responding here in the Xero review as I have access under my Accountant's master account to the relevant lower level, but have another 'Hat' that I'm about to start wearing.
I'm volunteering to transition a tiny Not-for-Profit's financials out of the paper & pen era, and into the 21st century. My limited experience with Xero to date & online/mobile banking here in NZ, made me think that this organisation could only benefit from becoming computerised/'cloud-ified'! As I'm the one taking on the task of modernising this organisation, and I'm a stickler for product-reviewing before purchasing, your site has been an absolute God-send.

Two points that might help other people in this situation and I think would enhance your site's overall usefulness:
1. Add a point (33?) on Not-for-Profit applicability. I noticed in the (Kashoo Review, I think) comments somewhere, another reader asking your comments on the (USA's) Not-for-profit applicability. As 'Small Business's' without Profit-priority, the value-for-money & time-saved over other forms of accounting/book-keeping, that the online brands offer, is really important.
2. Xero has a reduced cost for the legitimate Non-profit/Not-for-Profit, but it's not listed on the Pricing page of their website (you need to search for it in their Blog " A 25% discount is available to new organisations signing up direct with Xero who have a registered Not for Profit status." http://blog.xero.com/2012/02/making-accounting-ea… ) so I wondered whether other packages you've reviewed may have this sort of option hidden away too? (Wave as totally Free is obviously the exception.)

Thanks again for your shared labour/expertise.

    smallbizdoer
    October 8, 2012, 7:17 pm

    Hi GHC,

    I'm glad you've found the site useful! For not-for-profit applicability, so that I understand correctly, your criteria for judging whether or not the software is good for non-profits would be:

    1. Value for money (price)
    2. Time saved vs pen/paper, spreadsheet, or desktop software

    I didn't realize Xero had non-profit/not-for-profit pricing, so I've added it to the review. I don't know of other software that has this same type of offer.

XeroConvert
January 5, 2013, 8:54 am

Hey Greg – Another "thanks" for all the work you've put in! I actually found you awhile back when I was struggling with Wave (I left some comments long ago over on that review about the frustrations). I just wanted to close the loop and say that I've completely moved over to Xero and am **very** pleased. I'm a small but growing US based business, I know very little of accounting, and I'm doing it all myself (with a CPA's distant supervision) and it's going really well so far. The Xero interface is a joy to work with. Stuff makes sense to me.

The main glitches I've had have been around the PayPal integration – two things, one due to the timestamps on the systems, transactions are logged in Xero based on AUS time -which is unfortunately when I'm in the US (a bunch of sales made on 12/31/12 ended up posting to 1/1/13, as an example). I generally don't care except for the year-end ones. I don't know how to fix these except for deleting the auto-imported transactions and creating a manual import file from PayPal. Not fun.

The other issue is that refunds processed through PayPal don't always come into Xero correctly – this threw me off in a bad way for awhile as I couldn't trace where they went out of sync. It's a known issue but Xero doesn't do a great job of alerting users about it.

Their support has been quite responsive and friendly the few times I've had to ask for help. Agreed that compared to some others, their pricing seems high, but for now I'm willing to pay it – it's WAAAAAY worth it to pay this rather than the "free" Wave system that caused all manner of headaches (many bugs, bad imports, different calculations of the same numbers on different screens, hugely frustrating).

Anyway, just wanted to pipe up my two cents. Xero is making my life easier.

    smallbizdoer
    January 5, 2013, 10:19 am

    Hi there,

    Glad I could help you with my reviews and that you are having better luck with Xero.

    Yes, working with PayPal can be a pain in the a**! I've had to find workarounds myself. For your time stamp issues, that makes total sense why you'd have a problem. I believe though, that you can correct it in a better way. Instead of deleting the transaction, you can go in and edit it once entered through the reconciliation process. Just click on the "Account Transactions" tab http://www.smallbusinessdoer.com/wp-content/uploa….

    I don't know about the issuing refund problem.

    Yes, paying for a service that saves you time and does things in a better way can be definitely worth money. Glad it's working out for you.

Charlotte
January 23, 2013, 3:42 pm

Hi Greg – awesome and detailed review – thanks for putting it together!

With the new year we decided to look for a new payroll service to manage payroll for our 17 employees. We were using QuickBooks but the price kept going up. This also spurred us to look for a better accounting solution for our team.

We're a small company but most of work from various offices (and homes) so we needed something that was cloud-based. After reading your review, we decided to try Xero (full disclosure, we also tried Wave but found it extremely limiting – 'free' didn't mean quality for us!).

Xero took a bit to setup but once we got our chart of accounts and Canadian tax rates setup, it was relatively simple. Our bank (BMO) has automatic feeds so reconciliation was simple. I'm a big fan of the email and online invoice feature which has already helped us shorten our client collection times.

Only problem – there was no Canadian payroll support built into Xero. We looked at the addins and found two that said they were integrated.

We took a look at PaymentEvolution payroll (http://paymentevolution.com) and were really impressed by the simple interface. I actually learned how to use it within just a few minutes – and within about 15min of registering and entering our employee data, we had finished our first payrun.

Our payroll transactions get automatically posted to Xero as a draft invoice (which we can easily approve) and while it's not the 'integrated' system I'd really like, the combination has some real benefits. As a bonus, I talked to Sam (founder of PaymentEvolution) and made some suggestions on how to make the system better for us. Within a week, they built the feature (extra security and authentication for payments). Amazing!

Pros:
- Xero is really easy to use
- Connects with our bank
- integrates with our payroll system

Cons:
- iPad app is really meant for viewing your data and lacks the full functionality of their web app.

    smallbizdoer
    January 24, 2013, 7:21 am

    Hi Charlotte,

    Thanks for sharing your experience! Glad it all worked out for you.

Debbie
February 17, 2013, 4:02 pm

This is a great review – I left Quickbooks a few years ago and have made do with LessAccounting and Wave Accounting in the meantime. I tried QB Online again today, still not liking it. But I'm going to give Xero a try after reading this review. Thanks.

Emma
March 3, 2013, 5:38 pm

Just wondering are there any options with Xero to set up job costing codes or not? Also is it a multi user access as well?

    smallbizdoer
    March 4, 2013, 6:05 pm

    There is job costing, it's limited in comparison to QuickBooks, but can do the trick depending on what exactly you need it to do. And yes, there is multi-user access as well.

Rob Hansen
May 13, 2013, 11:41 pm

Hi Greg,

Great review. We're in Australia using MYOB and heard about online alternatives and came across Xero. I do have to say that the $49 p/m is pretty good with payroll and even the $69 p/m premium version. We just received a bill from MYOB for $980.00 for 12 months (Basically just includes mimor updates and tax tables) so even on the premium version, Xero represents a good saving. I think we'll go across.

Cheers

Rob

Justin
June 5, 2013, 12:50 pm

Great work. I've spent the last couple months exploring cloud accounting platforms. This is by far the best neutral review on any of them. Looking forward to your matrix and how you manage all that info. Best, Justin

@yaritsaarenas
June 11, 2013, 5:16 am

This is fantastic! By far the most thorough review I've found. I was looking at Xero vs. Wave and this is really helping make my decision, will read both tonight and compare. Thanks so much for taking the time to write this up! :)

John Hairsine
September 29, 2013, 6:10 am

This review is fantastic….. I started using Xero a couppe of months ago and have found this review really helpful as a walk through of Xero. Nearly a course in itself.

Thank you so much.

I did a book-keeping course 1966… did a bit with Microsoft Money… which I found easy.
I bought a Sage 50 package, installed it, registered it,…… took one look at it… HATED IT…. and DUMPED IT!! Not user friendly at all IMHO.
I started using Xero a month ago. I entered a whole years accounts with no problems at all.
I am using a Xero 'partner' accountant who is local who has helped a little.
I phoned support in Milton Keynes in UK a couple of times. They could not have been more helpful and replied to emails within the hour!!
I am sure I will find a couple of niggles….. but not yet!

I am so enthusiastic about Xero I reckon I could sell it door to door!