Review of Xero – the cloud accounting software

If you run a business, the likelihood is that you will have heard of Xero, the online accounting system.  It seems to be everywhere these days. That is why I found it important to make a review of Xero.

Are you wondering if this is something that you should be using?  Maybe you are frustrated by your current accounting system and you think that Xero might be better.  In this blog post, I review Xero so that you will be better able to decide if it is suitable for your business.

I have been working with accounting systems for over 30 years now and I have been exposed to a wide range of solutions – from complex systems integrated into ERP packages down to the most basic solutions used by microbusinesses.   This experience includes leading the selection and implementation of solutions in large manufacturing industry and also being the accounting specialist on teams to help clients select large ERP (Enterprises Resource Planning) Solutions.

I approach this review  of Xero in the same way as I approached a review of any accounting software – looking at approach, functionality, costs and ease of use

Before evaluating – begin with the end in mind

Before getting into the evaluation, you need to be clear on what exactly you want your accounts software to do.

Do you want to use it simply for bookkeeping – keeping track of customer balances, supplier balances, bank balances and vat owing.  Or will you be using it to get analysis and useful insights into your business.  For more on this see our blog post

What type of transactions do you have?  How many sales invoices per month? How many purchase invoices per month? Do you give and/or take credit? Can you download your bank statements from your online banking – if yes, what format?

Who will be using it – just you, staff members?  What levels of computing skills do you have?

How much support will you be getting from your accountant?  Will they be supportive of this or will they leave it to you?

What reports will you  want to run?

Xero’s Philosophy

Xero is cloud based and they take advantage of the fact that it is easier to share information between cloud applications than it is with desktop applications.

With Xero, you enter your sales invoices and purchases invoices as you do with most other software. Then you import your bank statements and you assign the various transactions to your income and expense classifications.

Pretty quickly, Xero “learns” from the way you have assigned, or coded, the transactions and soon starts to make suggestions as to what they are.  You can accept or edit, those transactions.

Once the transactions are entered and coded, you can run any of the usual reports.

That is the core approach.  However, Irish banks don’t facilitate the sending of statement information to Xero (bank feeds) so, for Irish users, a major advantage is lost.

Ease of Use

Setting up Xero

When you first go into Xero, you will see a dashboard which is customisable.  This should show all of the elements of Xero that you want to access regularly.

Setup is straightforward.  You enter your company name and your VAT number etc.  You may need to get opening information from your accountant so that your opening position is correct and you should tailor the list of income and expense accounts to get the information the way you want it.

Once you have it set up, you can start to enter sales invoices and purchases.  For each customer and supplier, you will need to enter their details.  You can do that up front, but most people do this as they are first creating the transactions for that customer or supplier.

You can tailor your invoices to suit the way you want them to look.

Day to Day transactions in Xero

Entering invoices and purchases in Xero is easy.  You have the option of having comment lines on your sales invoices.  Once the invoice is entered you can email it to customers and the system records that the invoice has been sent and when.

You can set up recurring invoices or bills.  You can also copy an existing invoice or bill to create a new one.

Training for Xero

Xero provides online training which you can use to get familiar with the product.  They also have a test company that you can use to practice on and get familiar with the product.

There are also independent online training options available on online training providers such as Udemy.  Just search for Xero in these training providers.

Correcting Errors in Xero

One area where I find Xero a little bit awkward is correcting transactions.  As you enter transactions, you may make mistakes in coding or maybe in the VAT rates.  Some accounting packages allow you edit these quite simply, much as you would in Word or Excel.

With Xero, you have to drill down to the basic transaction and then you have to put it into edit mode before you can edit.  It’s an extra step which can be a bit slower than I like.

Reports in Xero

Xero has all of the standard reports that you would need – Profit and Loss, Balance Sheet, Aged Customer Balances, Aged Supplier Balances, Bank Reconciliation Reports and Trial Balance.

Report Dates in Xero

When you go to the Profit and Loss in Xero, they present current month plus last three months plus YTD.  You also have other options – year to date, month to date, current financial year – which is monthly report.

What I find I need most frequently are last month or last month YTD. I can get those but I have to do a little bit more work to get them.

I would prefer if those reports were options to just click on.  It’s a small thing but it just adds to the time needed.

How Xero handles VAT?

VAT is an important element of any accounting software.  On paper it looks like Xero can handle VAT the way we, in Ireland, need it to.   However, its not that simple.

Irish users are given the global Version of Xero and users are reporting difficulties with that.  The more sophisticated users can work around it.  Other users seem to struggle.

For Ireland’s cash basis of VAT, sales are invoice based and purchases are cash based.  Xero can only do either “all invoice” (i.e sales and purchases) or “all cash” but not the Irish Hybrid.  You can get around this by running the reports both ways but that’s messy.

VAT in Xero needs to be well setup at the beginning so that the data is set up for easy analysis.  You need a good understanding of VAT and the software to do that.  When you do set it up well, the EU reverse charge and the RTD reports can all be run with some workarounds.

Another issue to be careful with is the closing off of filed periods so that a late transaction for a VAT closed period does not get missed.

Drill down in Xero

Drill down is a feature that I find invaluable.  If you are looking at a Profit and Loss and see a figure that looks wrong, you can click on the figure to open a new screen showing the make-up of that item.

From there, you can drill all the way down to the lowest level transactions making up the queried figure.

Xero has drilldown and it works well.

Using Xero to Collaborate with your accountant

One of the big advantages for me as an accountant is the easy ability to access clients accounting information.

If the client is having a problem entering transactions, they can ring me and I can check it out quickly by just logging on.  I no longer have to travel to their premises.

If the client is concerned about results and wants me to look review his/her accounts, that’s easy to do as well.

Xero allows the accountant to help with the setup, possibly even to complete the setup, and to help with VAT returns or reconciliations.  Overall, it makes it much easier for the client to have timely  and reliable accounting information to support them in managing the business

Exporting from Xero

You can export most reports from Xero to Excel.  The export works well, you get an excel sheet that is formatted well.

With some other accounting software, I find the exported sheets have merged cells which make working with large blocks of data awkward.  And let’s face it, you are usually exporting the data because you want to analyse or edit it in some way.  You don’t want to be hindered by merged cells.  With exports from Xero, I don’t find that problem.

Bank Reconciliations in Xero

The big breakthrough with Xero was the automation of the bank reconciliations using bank feeds directly from your bank.

Unfortunately, as mentioned above, Irish Banks are not yet providing those feeds.

We do have a work around however.  You can download transactions and import them to Xero.

Most, but not all, banks allow you to download bank transactions to a csv file.  Once you have the csv file you can open that file and edit it so that the data is presented as Xero needs it.

Once you import the file, it’s as if the automatic bank feed had worked.  You will be presented with a reconciliation screen where Xero shows you all the transactions imported and offers you its suggestion for what each transaction is.  If it doesn’t know what the transaction is, typically the first time it comes across that transaction,  it waits for you to tell it how to analyse it.

Working with csv files is a bit fiddly and I often get files rejected for reasons I don’t fully understand.  I then waste time playing around with file, deleting rows or columns to make it importable.  If you are not comfortable with csv files then you are not likely to be able to use this.

You can always leave the reconciliation to your accountant.  However, that’s losing out on probably the best feature of Xero.

Departments or Projects in Xero

Xero has always had the facility to organise your transactions around departments or categories.  This could be useful for larger businesses that want to track profits or costs by departments.

It only added the facility to track by projects recently.  This would be useful for any business that works on projects such as building contractors or event management companies.

Foreign Currency

Xero offers three different user plans – Starter, Standard and Premium.  Only the Premium plan handles multi-currency.

If your business needs to be able to handle foreign currencies then you will have to choose the most expensive plan.

The foreign currency feature is neat in that they pull the exchange rates from online rate providers so your exchange calculations are always reliable.

If the exchange rates change between the time the transaction (sales or purchase) was first recorded and it was paid, the system can handle the foreign exchange gain or loss and record them correctly.

Cost of Xero

The cost of the plans are as follows – Basic $20 per month, Standard $30 per month, Premium $40 per month.  (I am surprised to see dollar pricing.  I thought they priced in € but dollars are what they are showing for Ireland as I write this.)

They regularly have discounts for three to six months so you may be able to avail of that.

Remember that this is an ongoing monthly cost so if you are on the standard plan then that is going to cost you $360 per annum.  This seems expensive when you consider that you can still buy Quickbooks desktop for about €180 and you will usually get 3-4 years out of that.

On the other hand, Xero is constantly being updated and, it being a cloud product, you are always working with the latest update.  Also, unlimited support is included in the monthly fee and you also have access to an online user community.  With desktop products,  you typically have to pay extra for support.

Also, you won’t’ have to run a server if you are a multiuser site and you won’t have to worry about backups as Xero look after that.

What platforms can you use Xero on

Xero is a cloud product.  You can access it through a browser  (on Windows, Apple or Linux) or through apps for Android or IOS.

In my experience, the apps are best kept for creating and entering transactions.   For working with reports or for importing bank transactions, you are better working in a browser on a desktop or maybe a large screen tablet.

Xero Add-ons

A really attractive feature of Xero is the number of add-ons that are available for it.

Xero can communicate with other applications using APIs (Application Programming Interface).  In practice, what this means is that lots of other cloud products have been developed that provide additional functionality to what is in the standard Xero.

A small industry has emerged of developers who create products to fill the perceived gaps in Xero.  For example there are inventory apps, receipt management apps, crm apps, time tracking apps, job costing apps, integration with paypal etc.

A full list of apps can be found here –

Not every company seems to manage stock, or inventory, in exactly the  same way.  The standard Xero stock may not give you all the flexibility you want. In that case, there are likely to be add-ons that will help you.

Its good to have that option to expand functionality.

Xero is constantly being updated

One of the things that I am very conscious of with this article, is that, like most cloud apps, Xero is constantly being updated and those updates are automatically rolled out to all users.

I plan on updating it as often as I can and definitely for all major changes.   But when you are reading this, keep an eye on the date and realise that there may have been new features added or problems since it was written

What other products compete with Xero

Right now, the main competitors are Quick Books Online and Sage Online.  In Ireland we also have The Big Red Book Online , Sortmybooks and Surf Accounts.

I think Quickbooks is likely to be the biggest challenger to Xero.  Xero was first to market but Quickbooks had an excellent desktop product which they have been migrating to the cloud.  A few years back, QB started to move to the cloud.  At first, I thought their cloud product was a long way behind the desktop offering but it has improved.  Quickbooks pricing is slightly cheaper – € 14, € 21 and € 29 – and there is currently a 70% for the first year.

If you want cloud accounts and haven’t already switched to Xero, I think you should also keep an eye on Quickbooks Online.  In recent months, I have been looking again at their cloud solution and I think it’s now probably as good as and may be getting better than Xero.

They seem to be bring a lot of the features of the desktop product into the online product which can only be a good thing.  They also have the bank feeds functionality which, I hope we will one day be supported by the Irish Banks for all cloud solutions.

Their desktop product also has a weakness with VAT and I assume the online is similar.  Like Xero, there are workarounds but it’s not ideal.

Unlike Xero, they have a companion desktop app that addresses slow internet speeds.  You enter transactions into the app which buffers the transactions and uploads them as fast as your connection allows.  I think that will address the complaint many bookkeepers have about cloud accounting performance.


I have been using Xero for my own accounts for a couple of years now. Before that I used Kasfhlow, another cloud accounting solution, for many years.

I think that for Xero to be a good fit for you, you will likely have

  • A good broadband connection. Even with fast broadband, experienced bookkeepers entering large numbers of transactions, report that online accounting software is slower than desktop.
  • Created your sales invoices on a computer already so entering them in Xero will replace what you are currently doing and not creating more work.
  • Little or no purchases on credit. Won’t be entering many bills and your expenses will be made paid by bank or credit card transactions.
  • Had either no inventory transactions or a small number of inventory transactions.

That mix of transactions will not be affecting as much by performance issues.

I have been happily using Xero for almost three years now and its a good fit for me.  If you have high volumes of transactions or you have inventory items, it could still work but you would want to make sure that you can process those transactions fast and efficiently.  That may require the use of add-ons.

Your Turn

Have I missed anything?  Do you disagree with anything?  Let me know.  Every user and every business has their own way of doing things.  I would love to hear other views on Xero.

Xero Certified Advisor

What is Xero?

Xero is a cloud accounting application that provides similar functionality as most of the standard accounting packages such as Sage 50 or QuickBooks.

Being a cloud service, the data resides in the cloud and the application is accessed via a web brower.   Xero is  an example of software that are classed as Software as a Service (SaaS) and you pay a monthly fee for the use of the service.  Being a cloud service it has some advantages that traditional desktop applications don’t have.

What are the advantages of Xero?

1.     User friendly

The first and the main advantage of Xero is that it is quite easy to use. The online accounting packages tend to be designed for non accountants and they focus on the key actions that the user needs to complete, for example creating sales invoices and logging purchase invoices.  Xero is designed so that its fairly intuitive to use.

2.     Accessibility

As the software is a cloud application, it is accessible anywhere. You can use Xero from your desktop browser.   You can use it from your tablet such as the iPad or an Android tablet.  You can have Xero on your smartphone.

This allows you to check your accounting information wherever you are.  I’ve had a TV documentary maker who was out on one of the Aran islands and needed to check a balance.  He had his iphone and a signal which allowed him to just go online and check it on his phone – that is a big advantage for some clients!

3.     Software is always up to date

The software is always updated, unlike a desktop where you buy an application which you may get as a download or on a disc, and then that application doesn’t change unless you choose to update to the latest version. With Xero, updates are being introduced regularly, so you always have got the latest, most up to date version and it is all included in the price. And every time new features are added, you have access to those features almost immediately.

4.     Integration with other Cloud applications

As Xero is in the cloud, it can easily be connected to and exchange information with other cloud applications. There are lots of cloud applications that can work with Xero such as inventory management applications, CRM applications, banking applications.  Xero has the ability to push data out to these applications or pull data in from them.
Several years ago I had a client who did a lot of work online.  The nature of the work was that he had a lot of small transactions for which he got paid very small amounts of money – usually cents. This money was paid through PayPal.  He was able to set up his accounting package to connect to PayPal and this high volume of small accounting transactions were pulled in, immediately on login, into his accounting application.  This really streamlined his online operation and made it a whole lot more efficient for him.  So the ability to talk to other could applications can be very useful.

5.     Your accountant can help you remotely

Xero makes it easy for your accountant to access your data remotely.  Let’s say my client is using Xero, and they are having a problem. He or she can ring me up, we can go onto a Skype call or use some sort of other conferencing type call.  We can share our screen, so they can be looking at my screen or I can be looking and his/hers screen, whichever we want.  Using these tools we can resolve the question fairly quickly.   This could save a trip out to the clients’ premises for me which then makes the service less costly for the client if all they need is five or ten minutes of my time.

6.     Safe data back-up

Xero is always backed up.  The software provider will have the application and data stored in a number of different data servers, so if anything happens to one data centre, they have a backup  and can be accessed from another  data centre.  You won’t be aware of this happening. You won’t have the need to take backups or store them off site.  With Xero you also have the option of downloading data, just to be sure, to be sure, but in fact, that is not not needed.  They have it backed up better than you would probably do yourself.

7.     Functionality

Xero is a mature product  and at this stage, it has a lot of very useful functionality.  It offers reccurring invoices, multi-currency processing and automated bank reconciliations among other features.

A big advantage of Xero is that it has some very basic “intelligence” built in to the software. For example if a payment goes through your bank that might be for Three or Vodafone, you can set up a rule that this is a telephone bill, and that is normally a subject of VAT of 23%.  Every time that comes through, Xero will let you know it thinks that’s a telephone bill with VAT at 23% and you can accept or reject/edit the suggestion.  You don’t have to do any more with it.  You set up the rule initially, and once Xero recognizes that it’s a payment for Three or for Vodafone, it will code it properly.  It makes the process of coding at month end accounting simpler, easier and faster.

What are disadvantages of Xero?

1.     Slow with high number of transactions

There are some disadvantages to Xero.  You are using an online piece of software and if you have a lot of transactions and/or a slow connection, you may be waiting for a while until the screens re-build.  So if you have a lot of transactions, Xero might not be for you.

Book-keepers who come into a company once per week or month to bulk enter the transactions often find it doesn’t suit the way they work.

2.     Lack of support in Ireland

The Irish Banks don’t support the online accounting packages very well right now.  Elsewhere around the world, banks are providing feeds to Xero, so the bank statement can be pushed straight into Xero and then when you log into Xero, the application will tell you that you have these transactions waiting to be posted, and will use its intelligence to suggest to you what it thinks the posts should be.

There is a  workaround to overcome the lack of a feed – exporting the transactions from the bank and importing them to Xero but its more cumbersome.  Having said that, I use the workaround and I have dramatically reduced the amount of time I spend on monthly accounts.

3.     Cost

Xero costs more than a traditional desktop accounting software.  If you use something like QuickBooks online, you may have bought that for maybe €180-€200 for the licence, and you may get three to four years out of that before you decide to upgrade. So it could cost you €50 a year.

Xero typically costs around €25 a month, so you would be spending maybe about €300 a year on your software, which is a little bit more than you might be used to be spending.

How do you decide if Xero is right for you?

First of all you should look at the number of transactions that you have. If you have a low number of transactions – a low number of sales invoices and a low number of purchase invoices, then I would say Xero would be well worth looking at. If you have a high number of transactions, it might slow the process of entering these transactions down when you try and enter them all into the system.

Think about your  broadband.  Is it fast enough?  If it can handle something like Netflix, then it’s ok and can handle Xero comfortably.  If you speed is 1MB/s or less then maybe no.

If you are already using some cloud apps, like a CRM app or an inventory app or maybe something like Expensify for managing expenses, Xero can integrate with those cloud apps, and can make transferring data from one to the other a lot more streamlined.  If you are using any of these applications, I would strongly consider looking at Xero.

You would have to be comfortable with .csv files.  In Ireland at the moment the banks don’t provide the banks feeds for us, so what you have to do is use the workaround mentioned above where you go into your bank account and export you bank statement into a .csv file, which excel can work with. Then you have to tidy up that file, to make sure that the columns are in the right order and that it is ready to be imported into Xero.  So if you are not comfortable doing that process manually, you should probably shy away from Xero

If you do your own books, you will find that Xero will give you a lot of insight into what is going on in your business.  Xero will help you to really understand your accounts.  Completing the tasks of entering your costs and your invoices, knowing where they go, and being able to run the reports and drill down, will all make a whole lot of difference to how well you understand your accounts.

There are some businesses where Xero would be a good fit because of the type and number of transactions that they have.  For example, I am aware of furniture retailers that use Xero and they don’t have a till system or a point of sales system, all they have is an iPad. They can walk around the shop, they might have a small number of high value transactions per day and they can easily process those with an ipad and Xero. They can be with a customer, enter the sales invoice there and then, print it off on a wireless printer, give the sales invoice to the customer, and that transaction is already in their accounts.

Alternative applications

Xero is not the only online accounting package.

There is also Kashflow – a product that initially came out around the same time as Xero, but hasn’t grown as fast as they chose to grow organically rather than by investing loads of money into marketing as Xero did.  I think it is a bit simpler and a bit more user friendly, but it hasn’t developed functionality to the same extent that Xero has.

A newer product is Quickbooks online.  You may be familiar with QuickBooks – one of the bestselling desktop accounting packages in the last number of years. I heard recently that QuickBooks has made a decision to move online totally and that they will no longer be updating the desktop versions. At the moment I feel that QuickBooks and Xero will be the two main competitors of the online accounting packages. They will probably fight it out. I think they will probably end up having similar functionality.

SAGE have also introduced an online accounting package. The initial feedback was very poor, I know it has gradually been improved but I think they are a bit behind Xero and QuickBooks online.

Some of these online packages are a little behind, and don’t have as many integrations yet. Whether Xero will stay as the main player in the future, I am not sure. But right now, it is definitely the main player and should be considered if you are thinking of an online package.

We have worked with all the main SME accounting packages.  We also have significant experience helping select and implement software for larger businesses.  If you are thinking of going with Xero, or another cloud accounting package, feel free to contact me at