Xero in on Xero
Clients are often confused by the wording on the invoice template. While there is the option to hook up a payment processor, it isn’t there by default and requires additional setup. Also, if a customer makes a transfer to them via bank billpay, Xero doesn't automatically know to apply the payment.
Online invoices, whether viewed directly in a web browser or exported to a pdf, are one of the great features of Xero. They are customizable via Word templates, can have payment processors linked for ease of payment and a great customer experience, and are mobile friendly.
However, as often is the case when a product is extremely flexible, there can be confusion on a couple keys points. Today we are going to walk through a few of the common misconceptions, and clarify the functionality so that you (and your clients) can take full advantage of these features.
First, Xero provides for a few different statuses on invoices in order to provide some controls and flexibility about invoices are generated, approved, and issued: Draft, Awaiting Approval, and Awaiting Payment.
Draft is exactly what you’d think - it’s essentially a placeholder for invoices that have been started, but aren’t ready to go out to a client. Awaiting Payment is also straightforward - these are fully ready to go, and show up in revenue and A/R.
Awaiting Approval is where client often get stuck - they aren’t actually considered to be live and won’t show up in revenue or A/R, but have moved past the draft stage. This function is meant for situations where an admin or project manager is setting the invoices up, but they require approval before going out, usually from a management-level individual. It’s easy to miss these, as they don’t show up in the dashboard - you must build a process where the approver regularly goes into the Invoices section and reviews. Remember: systems enable great processes, not the other way around.
It’s also important to note that just because an invoice is in Awaiting Payment status, that doesn’t mean it has actually been sent to the customer. The only exception is when a repeating invoice is set to “Approve for Sending” status. Otherwise each invoice will need to be emailed from inside Xero (preferred) or downloaded as a pdf and sent via manual means.
A second common misconception involves the use of online payment processors. Xero integrates with multiple processors, including Paypal, Stripe and Authorize.net, plus a few others. This flexibility allows a company to keep the same processor consistent across it’s operations. However, it doesn’t come connected out of the box, and requires a little additional work when deploying the software (fortunately, it’s usually less than 5 minutes). The advantage of using a connected payment processor is that the payment status flows back into Xero - no manual payment application required.
This bring us to the 3rd common misconception - payment application. Unless using one of the connected credit card processors, Xero doesn’t have a way of knowing that a specific invoice has been paid. There may be a suggested match if the relationship is 1:1 (same dollar amount), but often a bank deposit consists of multiple payments. It’s important to avoid recording a Received Money transaction instead of applying the deposit to the correct invoices, as this duplicates the revenue, and inflates the remaining open receivables.
A great best practice is to record the batch deposits in Xero as they happen. Just go to the “Awaiting Payment” tab in the Invoices section, check the box next to each invoice that payment was received for, and then click “Deposit.” Your reconciliation process will thank you.
Learn and implement these fixes to three common problems, and you’ll be spending more time running your business, and less time keeping up with your customer invoicing.
Dan Schmidt
Author Bio: Dan Schmidt is the CEO of The Emerging Business CFO, a virtual accounting and financial advisory firm that works to free founders and entrepreneurs from the stress of managing the daily operational grind. The company offers operational accounting, systems setup and fractional CFO services. Twitter: @ebcfo