What is it?
Small business accounting, invoicing and payroll software.
How popular is it?
Xero has over 371,000 customers worldwide, as of October 2014.
What does it do well?
Offers very strong and reliable transaction management, invoicing and bank reconciliation.
What does it not do well?
Payroll is only available in a handful of states. Also, there’s no inventory management.
Who does it work well for?
Small businesses and accountants who want to use a professional accounting system.
Who does it not work well for?
Microbusiness who want simpler accounting or invoicing software. Also, larger businesses who need payrolling in a state that is not supported (see below).
Cash or accrual based accounting?
Does it save Audit Traits (log of user activity)?
Cost Compared to Competitors?
Cloud or Hosted?
No, Xero is based in New Zealand.
Xero pricing is divided into 3 main plans for small businesses. Each supports an unlimited number of users, but vary in some of the features you get:
- The starter plan is $9/month. It has all the main accounting features, but you can only send 5 invoices, enter 5 bills and reconcile 20 bank transactions per month.
- The Standard Edition ($30/month) gives you unlimited invoices, bills and reconciliations and adds payrolling for up to 5 employees.
- The Premium Edition ($70/month) boosts that to 10 employees and adds multi currency support.
Larger businesses can also pay an additional fee to get payroll for either 20 or 100 employees, depending on the edition.
Ease of use
- Setup – Easy. Xero has more of a guided set-up process compared to Wave or Zoho Books. The first time you log in, you’ll be asked to set up invoice settings, account categories and tax rates. This makes it a lengthier process, but it helps to familiarize you before landing on the homepage.
- User Interface – Moderate. Xero has a simplified navigation menu that can make some pages a little hard to find. To add a new journal entry, for example, you have to click Reports > All Reports > Journal Reports > Manual Journals. On the plus side, I found Xero to be free of any bugs or click response issues. Link bank accounts, also, was easy – you just need to enter your bank credentials (when supported).
- Support – Easy. Although there’s no phone support, Xero has 24/7 email support and a top notch help center with user guides and a community forum. I did not find any negative user reviews of Xero’s customer support.
Features it has
Features it has
5 Types of Accounts
Auto-import Bank Statements
*Available as a native add-on
**Available as a 3rd party add-on
Integrations it has
Integrations it does not have
Time Tracking (Harvest, Timely)
CRM (Salesforce, Sugar, Base)
Cloud Storage (Google Drive, Dropbox, Box)
eCommerce (Shopify, Bigcommerce)
Tax Prep Software
Payment Processing (Stripe, Paypal)
Digital Signature (Right Signature)
POS (Shopify, Vend)
Payroll (ZenPayroll, SurePayroll)
You can view all integrations here.
Xero supports all 5 main types of accounts (assets, liabilities, equity, expenses and revenue). You can enter, edit or import these fairly easily from the “Chart of Accounts” page under Settings. One unique feature is that you can set tax rates en masse for your accounts.
Journal entries are a little more sophisticated in Xero compared to Wave. The design feels more like a spreadsheet, which makes it easier to handle a large number of items. You can save entries as a draft, add notes and reverse entries – or schedule to automatically reverse it on a select date. One thing you can’t do with Xero is set up journal entries to recur.
This is an area where Xero excels. From the “Bank Account” page (pictured below) you can view the balance of your PayPal, credit card and bank accounts and compare them against your account balances in Xero. You can link accounts from all major banks, including Bank of America, Citibank, JP Morgan/Chase, Wells Fargo and more.
Transactions are automatically imported from your financial institutions. Before they can be added to your books, however, they have to be “reconciled,” which means matched with a transaction you manually entered, or copied to create a new one.
With Xero, you can set precise rules to auto-categorize imported transactions. For example, based off the name of the customer/vendor you could have transactions automatically categorized under a certain account. You can also set conditions using keywords in the description or the dollar amount of the transaction. This way, when you go to reconcile your account, Xero will suggest where each transaction belongs and you can approve with a single click.
If you like to reconcile accounts the traditional way – enter all transactions manually and later match them with your statements – the “Find & Match” tool will be very useful. It enables you to search by name, amount or reference number. Xero can also find matches automatically, however, so you may not even need to use it.
Check out the video below for an overview of Xero’s categorization rules:
Xero has pretty standard invoicing. You can add multiple items, apply different sets of taxes and send it directly to the client via email, or save it as a PDF. One thing I liked was how Xero let’s you skip the “item” column if you just want to add something quickly. Otherwise each entry needs to be saved in the system with an item code.
There’s loads of branding options to customize your invoices. You can upload a logo and modify the text/font and layout. To create fully customized invoice templates, you can save a .docx template and customize it with your word processor. (explained here)
Invoices can be set up to recur. One missing feature is estimates although you can save invoices as a draft and reformat them to look like an estimate. Bills are just about identical to invoices.
Xero supports 5 external payment services: Stripe, Paypal, eWay, DPS and Authorize.Net. They also support Go Cardless, but that is for GBP only. There’s also an option to add a custom URL if your payment processing service is not supported. This enables customers to click the link and pay via an external service.
Xero lets you save a list of contacts, which, by default, includes customers and suppliers. You can create custom groups, however, to categorize contacts however you like. Keeping a contact book in your accounting software has a number of advantages. For one, you can easily save contact details to pull up when sending an invoice or creating a bill. More importantly, however, clicking each contact pulls up a transaction history and summary of their outstanding payments.
Xero integrates with a number of CRMs to synchronize contacts.
Xero has strong multicurrency support. You can send invoices, reconcile accounts and process payments in over 160 different currencies. Exchange rates are updated hourly so you get reasonably accurate balances and reports.
Read more on multicurrency in Xero here.
Xero supports the largest number of 3rd party integrations, including a many CRMs, eCommerce platforms, time tracking software and more. This is thanks, in part, to their open API, which lets users develop tools to synchronize Xero data with other programs.
Check out the full list of integrations here.
Xero has over 40 standard reports, including an income statement, balance sheet, cash summary and journal summary. You can set the time frame and account type (where applicable), but besides that there isn’t much in the way of customization. You can’t build reports from scratch.
Xero has a mobile app for iOS and Android with limited functionality compared to the desktop version. You can view contacts, create invoices, view bank and credit card accounts and reconcile transactions. You cannot, however, create new contacts or accounts, view reports or enter receipts. Users are generally happy with the mobile app, but note that while it can be used for quick tasks on the go, it can’t be used in place of the desktop version.¿
Xero offers payroll with a Standard account ($30/month) or higher. You can use it to set up direct deposit, issue W2 forms and pay federal and state taxes. Payroll, however, is not supported in the majority of the US. Currently supported are California, Colorado, Florida, Illinois, Indiana, Maryland, Nevada, New Hampshire, New Jersey, New York, Tennessee, Texas, Utah and Virginia.
Read more about Xero Payroll here.
No, 6am to 5pm PT, Monday to Friday
US Based or Not?
No, email support only
Phone, Email, Live Chat?
Xero has free 24/7 support, but it’s only available via email. Xero does not have any phone support. There’s also a help center with a very comprehensive set of how-to guides. There’s also active community forums for businesses and developers. I did not find any negative reviews of Xero’s customer support.
The Bottom Line
Xero is advanced small business accounting software that’s most comparable to Quickbooks Online. Pricing between the two is similar, although Xero has the advantage if you want to use payroll (which is only available as an add-on with Quickbooks) or have more 5 users on the system.
Otherwise, to pick between Xero and Quickbooks, there’s a few other factors to keep in mind. First off, Xero has a few features you won’t find in Quickbooks Online, including auto-categorization rules for your bank transactions and multicurrency support. Quickbooks, however, has customizable reports, inventory management and time tracking.
Secondly, because Quickbooks is currently much more popular in the US, it’s easier to find accounting professionals who are familiar with the software. Both Wave and Quickbooks have certified professionals you can search for online, but Quickbooks has many more results in the US.