Xero vs Wave: Which Accounting Software Is Best in 2022

Xero and Wave are both popular accounting software that share similar features, but Xero is more sophisticated bookkeeping software. Unlike Wave, it includes the tracking of inventory costs and the ability to print checks to pay your bills and process payroll. For small service-based businesses, Wave is a good free option to consider.

When to Use Xero

If you’re a product-based business with employees, you should choose Xero, as it can handle all inventory quantity and cost calculations. It’s also preferred if you have point-of-sale (POS) transactions or need to track time and expenses to bill clients. It’s an honorable mention in our guide on the best small business accounting software and is one of our best QuickBooks alternatives.

Xero is better for

• Product-based businesses: Xero features a comprehensive inventory management system wherein you can track your inventory levels, evaluate product sales performance and calculate the cost of goods sold (COGS). Xero computes the COGS for every sale and tracks the cost of inventory on hand constantly, so you know your exact profitability throughout the year.
• Manufacturing businesses: Xero has a fixed asset manager that tracks your business’s fixed assets, depreciation, and disposals. You should choose Xero if you’re a manufacturer who uses different kinds of equipment for your production.
• E-commerce: Xero integrates with third-party apps seamlessly, making it one of our best e-commerce accounting software, and it can help you manage online sales on e-commerce platforms like Amazon, eBay, and AliExpress. With its robust list of app integrations, you can manage online sales, control stocks, and streamline admin tasks easily for your e-commerce business.

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When to Use Wave

If you’re a service-based business that doesn’t need to track time, Wave might suffice as a good free bookkeeping option. Unlike Xero, you can do bookkeeping for multiple businesses under the same account. If you have employees, you can add Wave Payroll for a monthly fee. Since it’s free, it’s the ideal option if your business is on a tight budget.

Wave is better for

• Simple accounting and bookkeeping needs: Wave’s features are an ideal fit for businesses that don’t need complex accounting functions like inventory and fixed assets management. With Wave, you get the basic accounting features you need to keep your business running. We recommend choosing Wave if your goal is to keep your finances orderly and accounted for properly.
• Managing multiple organizations: If you manage multiple businesses, you can create unlimited organizations on Wave for free. With Xero, you can only have one organization per plan.
• Newly built businesses: Wave is our choice as introductory accounting software for newly established businesses since it’s free and has no committed monthly or annual cost. Given that new business owners are still testing the waters, free accounting software can help ease the expenses until better small business accounting software is needed.

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When to Use an Alternative

• Consolidating multiple companies: Wave and Xero don’t have consolidation features. For Xero, you have to integrate with the third-party app join to consolidate. However, if you’re looking for accounting software with built-in consolidation features, you can check our best multicompany accounting software.
• Better customer service: FreshBooks offers the best customer service in our case study. You can contact them, let them contact you, or use a chatbot for inquiries. However, we only recommend FreshBooks if your business doesn’t have inventory.
• Access to local bookkeepers: QuickBooks Online has many certified public accountants (CPAs) and bookkeepers that can assist and coach you in bookkeeping and help with tax compliance. If you want to work with a local bookkeeper, we recommend going for QuickBooks Online since most bookkeepers are familiar with the software.

Fit Small Business Case Study

In our comparative analysis of Wave and Xero, we see that Xero outranks Wave in all of the 11 key areas in our case study. However, we don’t discredit Wave’s feature—even though it doesn’t perform as well as Xero. Considering that Wave is free, we’re still amazed by some of its features that aren’t present in most free and basic plans of many accounting software programs today.

Wave’s best features lie in tax, reporting, and accounts receivable. Meanwhile, Xero gets a perfect score for project accounting and high scores for general features and reporting. In the succeeding sections, we’ll discuss the similarities and differences of Wave and Xero in selected key areas in our case study.

Xero vs Wave at a Glance

Xero vs Wave: Pricing

Xero features three subscription plans plus a payroll integration add-on with Gusto. Xero’s plans start at $12 a month while Wave offers free accounting and invoicing to users. Like Xero, Wave charges processing fees for payments and additional fees for payroll.

Xero Pricing

Xero offers three different subscription plans. Each package supports unlimited users, but the higher plans include advanced features, such as multicurrency support, expense claim management, and project tracking. Xero also offers payroll through Gusto:

• Early: $12 per month for five bills and 20 invoices
• Growing: $34 per month with unlimited bills and invoices
• Established: $65 per month includes multiple currencies and project tracking
• Payroll with Gusto: $39 per month plus $6 per month, per employee

You can use Xero for free for 30 days before signing up for a paid subscription. For processing online payments, Xero integrates with Stripe, PayPal, and GoCardless. Here are the processing fees applicable:

• PayPal:
  • Invoicing: 3.49% plus fixed fee; depends on currency received; if you’re receiving United States dollars, the fixed fee is 49 cents
  • Quick response (QR) code transactions $10.01 and above: 1.90% plus fixed fee
  • QR code transactions $10.00 and below: 2.40% plus fixed fee
  • Send & receive money for goods and services: 2.99% plus fixed fee
  • Standard credit and debit payments: 3.49% plus fixed fee
• Stripe:
  • Cards and wallets: 2.9% plus 30 cents per successful card charge; additional 1% for international cards and another 1% if currency conversion is required
  • Automated clearing house (ACH) debits and credits: 0.8% capped at $5
• GoCardless:
  • Within the USA: 1% plus 25 cents capped at $2.50; a fee of 0.3% applies if the transaction amount is above $1,000.
  • International: 2% plus 25 cents, including currency conversion rates provided by Wise.

Take note that these charges aren’t from Xero but payment channels. Integrating these channels is free on Xero.

Wave Pricing

All of Wave’s core functions of accounting, invoicing, and receipt tracking are free. You’ll only pay for processing credit card and bank payments and payroll transactions.

• Accounting, invoicing, and receipt tracking: Free
• Credit card processing: 2.9% + 30 cents per transaction (for most cards), 3.4% + 30 cents (for American Express) per transaction, and 1% bank payments fee (ACH) per transaction
• Bank payments (ACH): 1% per transaction, minimum of $1
• Payroll:
  • Tax service states: $35 per month plus $6 per employee or independent contractor for users living in tax-service states
  • Self-service states: $20 per month plus $6 per employee or independent contractor for users living in the remaining 36 states

Takeaway: We recommend Wave for small businesses with limited accounting needs, and newly created businesses can use its free plan before subscribing to paid plans. Moreover, it’s a great option if you manage multiple companies since with Xero, you must pay separately for each company.

Xero vs Wave: Features

We’ll go over some important areas in our case study to give you a comparative view of Xero and Wave. You may read our Xero review and Wave review for an in-depth explanation and analysis of software features.

Features Comparison Table by Plan

Xero vs Wave: Banking and Cash Management

Xero scores high in banking and cash management because of its easy-to-use cash management and bank reconciliation features. The best Xero feature we like is its bank reconciliation module—except for the fact that users can’t enter ending balances of checking accounts to start reconciling. Instead, they must import the ending balance from their bank. However, Xero provides a side-by-side presentation in reconciling bank and book items for you. Once you upload your bank statement, Xero will extract line items automatically from it and look for possible matches. If there are no matches, Xero will let you create a transaction.

In Wave, bank reconciliation is manual. First, you have to input the statement balance and set the dates covered for reconciliation. Then, you have to manually reconcile transactions by corroborating information from the bank statements and Wave and clicking the check icon to indicate that the transaction has been matched:

Bank Reconciliation module on Wave

Takeaway: Xero and Wave may seem to have similar banking and cash management features at first glance. However, Wave lacks the functionality that we’re looking for in bank reconciliation. Although Wave may not have comprehensive reconciliation features, its simplicity matches the needs of small businesses with few banking transactions. But if you process a lot of bank transactions daily, Xero is a better option since it’s easier to reconcile.

Xero vs Wave: Accounts Receivable

Xero performed well in our evaluation for accounts receivable (A/R) management. You can set sales prices, create customers, email invoices, accept short payments, and manage customer accounts in Xero. Functionality-wise, Xero’s invoicing is great except that it doesn’t enable users to customize the aesthetics of the invoice. Users can’t change invoice colors and templates on Xero.

However, Wave isn’t too far behind because it has similar features to Xero like emailing invoices, creating recurring invoices, managing customer accounts, and accepting short payments. The fine line between Wave and Xero is that it cannot issue credit memos and sales receipts for sales paid immediately.

Takeaway: We recommend choosing Xero if you’re not particular about modifying the invoice design and template. However, Wave is suitable for you if your business needs simple A/R functions.

Xero vs Wave: Accounts Payable

Xero’s accounts payable (A/P) management system gets 21 out of the 22 features we’re looking for in an A/P system. The only feature that Xero fell short of is with recurring payments. Xero can record recurring bills but users have to record the payment of the bill manually. Typically, other accounting software programs record recurring expenses directly to the enrolled bank or credit card.

For Wave, the A/P system isn’t as comprehensive as Xero. Wave’s system is basic because it contains the foundations of an A/P management system like creating vendors, recording expenses, billings for inventory purchases, and viewing unpaid bills. Wave can’t issue credit memos, add unbilled labor and expenses, and view unbilled but incurred expenses.

Takeaway: Wave’s A/P system is simple and basic. We recommend Xero over Wave if you need advanced A/P features like recording and applying vendor credits, utilizing standard service item descriptions, and buying inventory.

Xero vs Wave: Fixed Assets

Wave doesn’t have any features to help manage your fixed assets, such as calculating depreciation expenses and tracking accumulated depreciation. Meanwhile, Xero can manage fixed assets from initial recording, subsequent depreciation, and eventual disposal.

Takeaway: If you have several fixed assets in your small business that’s vital to your operations, we recommend going for Xero instead of Wave.

Xero vs Wave: Inventory

Xero can manage inventories from purchase to sale, including separating your inventory costs into ending inventory and COGS. The inventory features of Wave aren’t enough even for simple inventory tracking needs.

Takeaway: We recommend Xero over Wave if you buy and sell inventory of any kind.

Xero vs Wave: Project Accounting

We give Xero a perfect 10 for project accounting because it contains all the features we’re looking for, especially project estimations, project cost assignment, and cost variance analysis. While Wave can be used to create estimates for a project, it cannot track costs by project.

Takeaway: Since Xero got all the features we want, Xero is the top recommendation for project accounting. However, if your needs are leaning toward creating estimates alone, Wave is worth considering.

Xero vs Wave: Ease of Use

Our overall evaluation of Xero and Wave is that both have a shallow learning curve. It doesn’t take long to familiarize and understand how each accounting software works. However, we’re placing Wave as the superior software over Xero in terms of ease of use.

Xero Ease of Use

Amid Xero’s comprehensive and advanced features, we’re giving Xero an average difficulty for ease of use. Given that there are many features to check out and study, it’ll take a little bit of time for users to get acquainted with the interconnectedness of the features. Setting up Xero for your business is also easy because it follows a step-by-step process before landing on the dashboard. Xero’s user experience (UX) is clean and not intimidating. There’s enough white space on the web page in case you’re multitasking on one computer screen. For subsequent use, it’s easy to use Xero and we think it’ll take less than a week for new users to understand the basics of the software.

Wave Ease of Use

Wave is easy to use. For free software, Wave delivers a clean and user-friendly interface. Since Wave possesses only basic accounting features unlike Xero, it’s not difficult to use Wave. Most of Wave’s features are simple accounting and invoicing functions, so it would be easy for users to study how Wave works. Its UX is slightly more modern than Xero and deviates from using tabular presentations in some modules.

Xero vs Wave: Integrations

In terms of third-party app integrations, Xero wins over Wave. Xero features the Xero App Store, wherein you can get third-party apps that can integrate with Xero. You can use popular apps—like Stripe, PayPal, Gusto, DEAR Inventory, HubSpot CRM, Mailchimp, Hubdoc—and other industry-specific apps. Xero also integrates with apps that we’ve reviewed. You can read our Dext Prepare, Hurdlr, and Expensify reviews for additional insights.

Meanwhile, to integrate Wave with third-party apps, you must first subscribe to Zapier and create Zaps for every app you want to integrate.

Xero vs Wave: Mobile App

You can download Xero and Wave apps from the Google Play Store and Apple App Store. Both apps have very basic features, and we find the apps lacking in important features. At the very least, Wave’s mobile app is already a bonus given that it’s a free service, so we wouldn’t put too much emphasis on the missing features of Wave’s mobile app. However, Xero’s mobile app isn’t as comprehensive based on the features we want to see. Overall, Xero and Wave’s mobile apps can do better, especially for Xero since it’s a paid service.

The table below shows a brief comparison of Xero and Wave mobile applications.

Xero vs Wave: Assisted Bookkeeping

Both Xero and Wave have assisted bookkeeping services in the form of Xero Advisors and Wave Advisors. With the advisor programs of Xero and Wave, you can get one-on-one bookkeeping and advisory services. For Wave, you can get the following additional services at the following price points:

• Bookkeeping and payroll support: $149 and up per month; best for entrepreneurs who want to outsource bookkeeping
• Tax service: $899 annual starting price
• Accounting and payroll coaching: $229 one-time fee for a one-hour coaching session and 30 days email support from your coach; best for Wave users who want to do their own bookkeeping

Unlike Wave, Xero relies on third-party Xero-certified CPAs or CPA firms to provide assisted Bookkeeping. You can look for Xero Advisors in the Advisors directory depending on your location.

Xero vs Wave: Customer Support

Xero and Wave’s customer support is poor. With Xero, you can only access support by chatbot and email or through self-help information. Meanwhile, Wave offers support only by chatbot, and its self-help information isn’t detailed. Both providers don’t give a phone number where customers can reach them. We recommend Zoho Books for excellent customer support.

Bottom Line

In our in-depth evaluation of Wave and Xero, we explained the ins and outs of each software. However, we don’t discourage you from choosing one over the other. We recommend Wave for small businesses that don’t need complex accounting features. Although it’s limited in many aspects, it’s still flexible enough for basic accounting functions. Meanwhile, Xero offers a complete bookkeeping solution. We recommend it for product-based retailers and manufacturers who need to keep track of inventories.