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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.
You can check out Xero at http://www.xero.com/.
Signup is basic and no credit card is required.
The trial is limited to 180 days with a maximum of 5 new invoices and 50 reconciled bank transactions.
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.
We’ll see how Xero does!
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.
If you click on “Manage Account” you can access most anything you’d want to do involving your bank account.
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.
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.
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).
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.
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.
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.
You will then get search options as seen below that will help you filter results.
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).
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.
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.
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.
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.
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.
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”.
The “manual journal” window looks like this.
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.
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).
I’m thoroughly happy with Xero’s chart of accounts capabilities. You can can also import and export them as well.
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.
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.
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.
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)).
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).
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.
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!
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.
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).
You then have the option to activate your bank feed by entering your credentials.
Once you enter your credentials, Xero attempts to connect to your bank.
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.
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.
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”.
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.
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):
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.
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):
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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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Xero has invoicing capabilities that can be found at Accounts > Accounts Receivable > New Invoice.
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:
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).
For more on accepting PayPal payments on invoices please visit this Xero help file at http://help.xero.com/int/#Q_OnlineInvPayment.
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.
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/.
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.
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.
This is a section that covers features or functionalities that didnít get their own section.
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.
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).
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.
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 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.
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.
From the Help Center you can access the Xero Community (or in other words 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.
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:
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).
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).
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.
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.
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:
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.
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:
Note: For an up-to-date review and comparison of online accounting software, please check out my ebook.
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 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 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.
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.
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.
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.
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.
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.
After re-importing my trial balance, I now see that my credit cards show up as being able to be categorized.
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.
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)!
If you have a PayPal bank account, automatically importing data is slightly different than a regular bank account.
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.
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.
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.
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”).
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.
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!
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.
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.
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.
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.
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).
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:
$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.
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.
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).
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”.
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.
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.
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.
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.
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.
For a credit card payment, you use the transfer tab.
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. 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.
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).
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).
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.
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.
The last thing that I found interesting was how Xero handled income I received via PayPal.
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!