This article is part of a larger series on Accounting Software.
What We Recommend Xero For
Xero is a solid choice for most small businesses looking for a less expensive option than QuickBooks. Its inventory features are excellent for product-based businesses that need small- to medium-volume inventory tracking. Service-based businesses will benefit from its outstanding project accounting.
Xero Accounting Software Is Especially Good For
- An alternative to QuickBooks: Xero is our top pick for the best QuickBooks alternatives. It has features very similar to QuickBooks but is considerably less expensive and includes unlimited users.
- E-commerce: The inventory tracking feature of Xero is ideal for e-commerce companies because it calculates your cost of goods sold (COGS) automatically and maintains a list of customers. You can also monitor customer payments and orders with Xero, making it suitable for online transactions. We chose it as one of our top-recommended e-commerce accounting software programs.
- Fixed asset management: Xero has a fixed asset manager that keeps fixed asset records and calculates depreciation expenses automatically. It’s the only general bookkeeping program we’ve reviewed that has a fixed asset management feature. This unique feature, along with its overall functionality, earned Xero an honorable mention on our list of the leading small business accounting software.
Xero Accounting Software Is Not Good For
- Multiple businesses: Xero has a one-account, one-organization subscription rule. This means that every organization you handle will be separately billed, and you cannot add organizations to existing Xero subscriptions. Xero isn’t a good match for you if you’re a bookkeeper who manages books of several clients or a business owner with several businesses. Instead, you can check our best multicompany accounting software.
- Nonprofit organizations: The overall framework of Xero’s accounting process is tailor-fitted to for-profit organizations. Although Xero gives some reporting flexibility through custom tags, it would take considerable customization to get the reports a nonprofit organization requires. For nonprofits, we recommend QuickBooks Premier Plus 2022 Nonprofit Edition because it has features like end-of-year donation statements, statement of functional expenses, and donor contribution reports.
- Customer service: You can only contact Xero through email. If you need immediate help, you can use a chat-bot or self-help information. We don’t recommend Xero if you’re looking for superb customer service. Instead, consider Zoho Books because it’s by far the best accounting software in our list that has excellent customer support.
|Excellent inventory accounting||Lowest plan is limited to 20 invoices and five bills|
|Ideal for project accounting||One subscription is good for one organization only (no option to add multiple organizations)|
|Easy-to-understand bank reconciliation||No annual billing option for plans|
|Robust integration choices with third-party apps through the Xero App Store||Limited features for nonprofit organizations|
Xero Case Study
In our Fit Small Business case study, we compared several accounting software using criteria that our experts have developed. Xero performed exceptionally well in most key areas, but it performed best in the area of fixed assets and project accounting. Xero fell short in customer support and the mobile app. Zoho Books is our recommendation if you’re particular in these two areas.
Xero has three pricing plans. Before subscribing, you can access all of Xero’s features for 30 days for free and decide which plan best suits your needs.
- Early: $12 per month up to 20 invoices and five bills
- Growing: $34 per month for unlimited invoices and bills
- Established: $65 per month for unlimited invoices and bills plus project accounting
Xero Accounting Features
In our expert evaluation, we found that Xero has many great, useful features that can work with different businesses. Overall, Xero did an excellent job in most of the areas we examined, even though it fell short in customer service and the mobile app. Let’s look at our accounting expert’s walkthrough, analysis, and evaluation of Xero’s accounting features.
We like how easy it’s to set up your business on Xero. The chart of accounts has default accounts set up, but you can modify existing accounts or add new ones as well. The most accessible general feature of Xero is its user-friendly conversion balances window that allows you to input your beginning balances while clearly distinguishing if you’re entering a debit or credit. You can also invite an additional user and set limits to their access.
Xero General Features Video
Xero’s accounts payable (A/P) management is another of their strongest features in our evaluation. From vendor creation to recording of payments, Xero can help in keeping your billing system organized. Xero also has an outstanding PO system to convert POs into bills, track unpaid bills, record e-payments, and apply vendor credits:
The bills window of Xero is presented in a tabular format wherein you can see pertinent billing details like vendor, invoice date, due date, amount paid or due, and the status of the bill. Navigation is very user-friendly: everything is laid out neatly, and it’s not complicated, even for first-time users of Xero.
However, Xero cannot record recurring expenses automatically. Xero can create recurring bills, but you’ll need to record the payment of that bill manually. It would be nice to have an option for a recurring expense to be deducted from your checking account automatically.
We also found a minor problem in purchase orders (POs) and inventory. In Xero’s system, inventory on a PO isn’t reduced automatically when only a portion of a PO is received. Instead, you’ll need to edit the original PO and adjust the quantity not yet received. Otherwise, the number of units available and on a PO will be overstated. Though it can work this way, we still don’t see it as a great solution since there’s no paper trail or change log when editing POs.
Aside from those two minor issues, the AP management system of Xero is outstanding, easy to use, and comprehensive. Overall, we gave Xero’s AP a high score since it performs well in most of the A/P aspects we want to see in accounting software.
Xero A/P Features Video
In the accounts receivable (A/R) management portion, we took into consideration major aspects like invoice creation, inventory adjustments, and customer payments. For invoice creation, we found that Xero doesn’t give users the ability to customize the invoice in terms of invoice color, layout, and font to the extent of other accounting software. Although Xero lets you customize invoice elements, such as invoice line items, we wanted to see some personalization in creating invoices.
However, we’re satisfied with how Xero takes into account COGS and inventory adjustments when creating invoices. Xero can accommodate short payments, which is a great feature, and it can issue sales receipts for immediate payments:
The invoices window of Xero is similar to the billing window. We like its advanced search feature, which you can use to search invoices using multiple fields and filter them appropriately. In summary, Xero’s AR management is competitive when compared to applications like QuickBooks and Freshbooks. Its ease-of-use score is also high, making it a great software for A/R.
Xero A/R Features Video
Xero’s banking and cash management features score high in our evaluation because they include all the cash management features we like to see in accounting software. We like the side-by-side layout when reconciling transactions because it’s easy to match transactions and spot bank statements items that haven’t yet been recorded.
Users can also upload files like bank statements to register the transactions in the books automatically. The only setback we see here is that users can’t enter ending balances of checking accounts. Users have to upload the bank statement first before reconciling.
However, we found that it’s impossible to combine multiple checks along with cash into a single deposit entry. Xero does provide an account to hold undeposited checks, but the feature doesn’t track when checks are removed and deposited, nor does it allow cash to be added to the deposit. Though such a feature doesn’t impact the overall performance of Xero that much, not being able to group payments into bank deposits makes it difficult to reconcile your bank account.
Xero Banking & Cash Management Features Video
A unique feature of Xero is that it has a dedicated fixed assets manager page. Every aspect of fixed asset accounting and depreciation is straightforward with Xero’s fixed asset manager. You can record fixed assets, set up depreciation entries, and account for gain or loss on fixed asset disposal.
In Xero, you can calculate book depreciation but not tax depreciation, which isn’t a major problem since your tax preparer, or tax software, will make that calculation for you.
Xero Fixed Assets Features Video
Xero got a perfect score for project accounting. In our rubric, we emphasized higher weights on project estimate assignment, labor cost assignment, and the recording of inventory used in projects. We saw all of these features in Xero, and we’re satisfied with how it can help companies stay on top of projects in terms of income, expenses, and profitability.
Xero Project Accounting Features Video
In this area, we emphasized certain features like creating inventory items, viewing inventory levels, adding inventory to invoices, and allocating COGS. Xero has all of these features alongside minor features that can help in inventory management, like viewing inventory cost information and POs
To reiterate our point in Chapter 2 of our case study, the only shortcoming we see is the problem with viewing inventory in the PO. Overall, we’re satisfied with how Xero’s inventory features performed based on our rubric. We evaluated inventory as part of our A/P and A/R testing, so there’s no separate video.
In evaluating the reporting features of Xero, we’ve set 16 necessary reports that every accounting software should have. Xero has 14 out of the 16 reports we want to see, including basic financial statements, specialized reports, and other accounting reports, and is missing two special reports: income/loss by customer and unbilled time. But even though it doesn’t have these reports, it doesn’t affect the overall experience.
Xero fell short in customer service. In general, accounting software companies should have open lines of communication with customers. Unfortunately, Xero only has a chatbot, customer service email, and self-help information.
We want to see comprehensive features in a mobile app, like sending invoices, entering bills, receiving payments, and entering vendor payments. Xero’s mobile app is basic. It has basic mobile app features like receipt scanning, sending invoices, and expense categorization. However, users of the Xero mobile app can’t receive payments from customers, record time worked, assign billable time, and generate reports.
Xero Mobile App Features Video
Assisted Bookkeeping Options
You can access Xero-certified independent accountants and bookkeepers or accounting firms in Xero’s Advisor Directory. Aside from Xero advisors, Bookkeeper360 also offers assisted bookkeeping services for Xero users. Read our Bookkeeper360 review to know how you can connect it to Xero.
Xero offers a huge library of apps that can integrate with accounting software. There are more than a hundred apps available in the Xero App Store. From accountant tools to CRM, it’s easy to integrate Xero with your existing software services.
Best for: Free accounting software for small businesses
Best for: Small businesses that need comprehensive inventory tracking and reporting features
Best for: Nonprofit accounting and donor management
From $25 to $180 per month
Starts at $549.99 for one user, annually
Alternative Software Comparisons
Now that you have a detailed understanding of Xero, we’d like to further help you in choosing the best accounting software for your small business. We’ve compiled the following articles that compare Xero with other accounting software to help you gauge its capabilities and to provide you with software alternatives that might be the best fit for your needs instead of Xero.
- Read Xero vs QuickBooks Online if you’re looking for a Xero alternative.
- Read Xero vs Zoho Books for comparable inventory and project accounting features but with Zoho Books having better customer support.
- Read Xero vs Wave if you’re looking for a free accounting software alternative.
- Read Xero vs FreshBooks for comparable project accounting features but with FreshBooks having no inventory management features.
Xero is a great alternative to QuickBooks Online for budget-conscious small businesses. With Xero’s relatively affordable pricing points, you get features that you’ll only see in higher-priced plans for other accounting software. However, we also found that Xero isn’t suitable for nonprofit entities or specific businesses that need multicompany accounting features. Overall, it’s great software for daily accounting, inventory keeping, and project management. We recommend it for project-based and product-based companies because of its flexible features.