Xero is arguably the most flexible and easy-to-use cloud accounting solution available. Is your Xero setup configured in the best way for your business, though?
Xero is a very popular cloud accounting software used by over 1.3 million businesses around the world. The vast amount of integrations and third-party apps and add-ons offered by Xero, combined with its clean interface and highly effective automation features make it one of the most attractive cloud accounting options available today.
Understanding how to set up Xero is relatively straightforward — once you’ve set up your bank feeds, payroll, invoicing, and reporting, you’re ready to get started with the basics of Xero. there are, however, a number of commonly overlooked but critical errors that can impede the efficiency of your Xero setup.
The following checklist will help you make sure you don’t overlook the five most important Xero configuration settings when setting up your Xero account.
1. Make Sure You’ve Enabled Immediate Online Payments
Xero provides businesses with a wide range of invoicing options. Using Xero, it’s possible to create highly customized invoices complete with company branding, payment terms, and more. The most commonly overlooked invoicing feature, however, is immediate online payments — Xero doesn’t enable online invoice payment by default.
Setting up Xero online invoice payment is simple and takes less than five minutes. Adding “Payment services” to your Xero setup enables direct email invoicing and allows you to create invoices with a built-in payment button. This allows your clients and customers to pay your business online immediately, significantly reducing the risk that your invoices may be paid late.
If you’re not sure how to set up online payments with Xero, you’ll need to set up a payment service. Xero offers built-in payment functionality via both PayPal and Stripe, as well as direct debit options. These features can be found via the settings tab on the Xero dashboard, under General Settings and Payment Services.
2. Understand the Xero Chart of Accounts
Xero integrates a chart of accounts function that presents a comprehensive list of all accounts that transactions can be allocated to. Telephony expenses, for example, is an account that can be found in the Xero chart of accounts.
While many users are aware of the Xero chart of accounts, the fact that the chart of accounts can be customized is commonly overlooked. It’s possible to add a variety of different accounts that are specific to your business, allowing for more accurate reporting.
Xero provides many specific accounts within the chart of accounts, such as printing and stationary, light and power, general expenses, and office expenses. These accounts may not be relevant to some business types, such as location-independent sole traders, ecommerce businesses, or consultants.
Minimizing excessive or highly specific accounts within the Xero chart of accounts can streamline data entry. If you’re not sure which accounts you should track within your chart of accounts, it’s best to consult with your bookkeeper or accountant during the Xero setup process.
3. Ensure Your Payment Gateways Are Set Up Correctly
The online payment functionality integrated into Xero, such as Stripe payments, can dramatically speed up the remittance process — but it’s essential to make sure these payment gateways are configured correctly.
Stripe, for example, transfers funds into your business bank account on a rolling two-day schedule. These payments are made in batches, which means individual processing fees and sales aren’t fully accounted for. There are a number of third-party apps and add-ons that can provide extremely detailed transaction processing options, but it’s also possible to fix this issue with a quick Stripe shortcut if your business doesn’t require a great level of detail.
If you’re using Stripe to process online payments for Xero, it’s possible to log in to Stripe and manually sort through transactions by country of origin, fees, and refunds, then export them in spreadsheet form. This spreadsheet can then be provided to your bookkeeper or accountant in order to account for refunds, sales, and fees.
4. Set Up Payment Reminders
Following up unpaid invoices is a headache for businesses of all sizes. Australian Small Business and Family Enterprise Ombudsman data reveals that it takes an average of 36 days for small business invoices to be paid in full.
Fortunately, Xero provides an automatic invoice reminder function that will follow up on unpaid invoices with clients and customers when invoices become overdue. The Automated Invoice Reminder function allows businesses to create customized email templates and set up a delivery schedule. The default reminder schedules offered by Xero are 7, 14, and 21 days after invoice due dates.
5. Don’t Forget About Bank Reconciliations
Xero helps businesses prevent missing or duplicated transactions through the bank reconciliation process. Xero automatically matches accounting records with bank statement lines, which can often cause users to overlook the critical step of reconciliation.
Xero provides a simple and easy to use reconciliation report function. Creating a reconciliation report and comparing it to your bank statement will help you identify any missing or duplicated transactions that need to be imported or removed, ensuring your accounting is accurate and up to date.
The amount of effort you’ll need to invest in your Xero setup, depends on what you want to get out of it. If you simply want to track expenses, payroll, invoicing, and receive invoice payments online, setting up Xero can be simple.
If you’re planning on setting up Xero with extensive third-party apps and add-ons, however, Xero setup can get a little bit more complex. By taking the time to ensure that your Xero stack is set up correctly you’ll create a highly efficient cloud accounting solution that will save you a significant amount of money and time while delivering deep, actionable insight into the financial state of your business.
If you’re interested in setting up Xero at your business, expanding the functionality of Xero with add-ons and integrations, reach out to the Xero accountants and bookkeepers at Fullstack for in-depth guidance and advice today.