Xero is a great tool for small business accounting, and we like it a lot.
BUT…
We know from our own experience that not every small business owner is getting the best out of using Xero. So we wanted to highlight key features you need to use if you want to begin to maximise its potential for your small business.
1. The Bank Feed
Xero has a capability to connect most banks to the software via a ‘feed’. Once this feed is connected, your bank sends all the bank statement data, line by line, into your software. So, you will get all your daily bank transactions shown inside your Xero, automatically.
In the ‘old’ days you had to enter every statement line into accounting software (or a spreadsheet), which was very time consuming and prone to human error. Having the automatic feed literally saves hours of manual data entry.
Categorisation: Once your data is safely inside Xero, you then categorise it into the correct accounting category.
VAT: If you are VAT registered, you can tell it whether to claim the VAT or not.
AI categorisation: When Xero sees transactions you have categorised before, the artificial intelligence (AI) style features will often pre-populate the boxes, saving yet more time. (Do check if it is correct!).
Rules: You can also set up ‘rules’. When Xero sees a bank transaction that matches the conditions you set, it will suggest that you apply the rule, automatically categorising it. For example, you may set up a ‘rule’ for your regular bank charges. You tell Xero that whenever it sees Insert your Bank’s Name with a certain reference (such as ‘charges’) it should suggest that rule is applied. If it’s ok to accept the rule, you just click OK and the transaction is deal with.
No feed: If your bank does not offer a feed (and it’s rare these days), simply download a statement in a spreadsheet format from your online banking and ‘import’ it into Xero. This will still be quicker than entering it line by line!
Check your ‘rec’: We’d always recommend checking that the bank balance and balance in Xero match at any given point in time. This is known as making sure the bank ‘reconciles’.
Just do it: If you take nothing else from this blog, get this bit sorted. It’s a massive time saver, and it is amazing how many businesses we come across who still manually enter things into the software. In a Xero study, it was reported that some users were saving up to 5.5 hours per week by using the feed against manual insertion.
The best part is that, when you’ve dealt with all of your bank transactions, this is usually a large part of your small business book-keeping done!
2. Email In and Receipt Capture
For best practice (and more time saved), you should capture your receipts and invoices inside Xero. This is particularly important if you’ve paid for a business transaction with personal funds or cash, not using the company account or cards. It’s very easy to lose a tax deduction because you simply didn’t capture a receipt.
There are generally two ways to set up your receipt and invoice capture:
- Use Xero’s own receipt capture feature
- Use a 3rd party app
Using Xero’s inbuilt features
First, you need to take a photo of each receipt. Xero has a few ways to get your pictures of receipts or PDF copy of invoices into the system. Then you have a choice of options.
Desktop drag and drop: When you have the transaction in front of you on screen inside Xero, you can actually drag a document from your computer into Xero and drop it onto the Xero screen, attaching it to the transaction. The obvious downside to this is that you need to be at your computer and have the invoice or receipt as a file saved to your PC, which isn’t ideal for on the go capturing.
Email from phone or desktop: You simply email the invoice/receipt document to a special unique email address, and attach it later to a transaction or to create a ‘bill’.
You can find this email address by:
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- Going to the Business menu
- Clicking ‘Bills to pay’
- Clicking Automate bill entry (top right)
- You can then copy your unique email address
Anything emailed to that address will arrive as a draft ‘bill’ (presuming the system can read it), and will include a picture of the bill. If the format is clear, Xero will even attempt to ‘read’ it and automatically fill out the price, dates, references and name of the place the invoice or receipt is from, saving you even more time.
On the go: For on the go capturing you can:
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- Take photos on your phone and transfer these to your computer
- Take photos on your phone and email them in (as above)
- Install the Xero App on your mobile to ‘add a bill’, which allows a photo to be taken and attached
- Use the 3rd party app method described below
Using a 3rd Party App
You can use a variety of stand-alone smart phone apps to capture receipts, but just make sure they are compatible with Xero. As an example, this is the way our own book-keeping team here have this workflow set up:
- Choose a 3rd part app that is compatible with your phone and Xero
- Download your chosen 3rd party app and connect it to Xero
- Snap all pictures of receipts on your mobile or;
- Email the pictures to a unique email provided by the app
- Log in online to see how your app has dealt with the receipt
Check it’s correct: Your 3rd party app will have already prepopulated all the details from the receipt so long as the image is clear. However, the AI involved is far from infallible, and still needs a human (you!) to check it.
Rules: These apps have rules and customisable set ups to make this very fast. With some, you can even set it to just send the data and receipt straight into Xero without you looking (but see human note above!).
Approval: Once you ‘approve’ it, you’ll find the receipt inside Xero. Match it against your bank transactions or otherwise deal with it.
Time-saving: This process may sound longwinded, going from just categorising in your bank feed to adding another screen. Take it from us as a company that processes hundreds of thousands of transactions a year for clients, when the technology is used well, it’s a massive time saver.
Review: Having the receipt or invoice attached to a given transaction is also great for your own interest so you can see what you paid for in exact detail. Your book-keeper or accountant will also love that level of detail.
Free app: If you don’t like the idea of adding more cost to the set up with another app, Xero users get access to the app HubDoc for free, and this will definitely do the job.
3. Electronic Invoicing and Statements
The ability to create and send electronic invoices to clients or customers is a key feature of Xero for most of its users. However, many small businesses we see continue to use a Word or Excel document they continually overtype to create invoices – despite having Xero!
Get paid quicker: Having invoices raised in Xero can help you get paid quicker, AND really help you keep an eye on who owes you what via the ‘Accounts Receivable Summary’ report.
Statements: You can also send out electronic statements directly from the system to remind customers or clients they owe you some money. If your book-keeping is regularly up to date, you can turn on automatic reminders to send these statements. Just remember it’s very poor form to chase clients or customers for invoices they’ve paid, but you haven’t yet marked as Paid in your software!
Separate invoicing: Some industries prefer 3rd party apps for invoicing. Many of these will connect to Xero and automatically create copy invoices in the system, if you set this up.
4. The Dashboard
The dashboard is the first thing you see when you log into Xero. This can be a powerful tool for taking stock of the business finances.
You can control on what you see here using the ‘edit dashboard’ button in the top right. Our favourites things to view are:
- Invoices owed to you – who owes you money!
- Bills you need to pay – so you know what you need to pay out
- Bank balances – keeps you up to date with your cash
- VAT return (for VAT registered businesses) – gives you the next return due date
The dashboard can also give you key “data health” reminders such as bank connections that need renewing, and the amount of transactions you need to deal with in any connected bank feeds.
5. Key Reports
Many of our clients barely touch this menu in the software, but they are missing out! There are some really useful pre-made reports to keep you in the know:
Accounts Receivable Summary
This report shows you who owes your business money per customer/client. If this looks inaccurate, it’s a good indicator something is wrong in your book-keeping!
Accounts Payable Summary
This report shows you per supplier who you need to pay. Again if this looks incorrect, it’s likely there is an issue with your book-keeping somewhere.
Profit and Loss
A report showing how much money the business is making (or not!), for your chosen date range. One word of warning here, certain things like limited company dividends, investments in large equipment etc will not normally be shown here. More on this in our blog on the subject.
Balance Sheet
Probably the most important but most difficult report to understand! You can read more on this in our blog on How to Read a Balance Sheet.
For further thoughts on how to get ‘closer to your numbers’, have a read of our Monthly Awareness Checklist.
6. BONUS: The Find and Recode function
This is an amazing tool, but it should be treated with care.
If you’ve realised you’ve made a mistake on a batch of transactions, you don’t need to go and change them all individually.
Instead, use the ‘Find and Recode’ tool to search your transactions by criteria you set. Then, tick the relevant transactions you want to bulk change.
You can then select what you’d like to change, be it the categorisation, VAT rate or contact name.
This is particularly handy if you need to change the VAT code, as you may struggle to do this manually if you’ve applied a payment to that bill (this bypasses this issue).
Top takeaways
- Get your banks connected to Xero
- Set up your receipt capture workflow
- Use the invoicing function and send statements
- Look at your dashboard for a snapshot of the key numbers
- Dig into the reports, especially to see who owes you money and who you need to pay
- If you’ve made a mistake or want to change something, try ‘Find and Recode’
If you haven’t yet started your journey with Xero, you can get a great deal via use of this link: www.heelanassociates.co.uk/xero
Still anxious about your accounts?
If you don’t have an accountant, or feel you aren’t making the most of Xero with your current accountant, we’d love a chat about how we can help.