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6 Top Tips on Keeping Your Xero Tidy

Now is the perfect time to go through your Xero and give it a good tidy up.

We recommend checking your contacts, bank reconciliation and bills regularly to avoid errors and headaches. It will save you hours later trying to figure out what has gone wrong.

1. Contacts 

Is your Contacts list getting out of control? It is long and you have a few names for the same contact but you can’t remember which one you used last time?

It is good practice to do a little housekeeping on your Contact list in Xero. Some could be merged if they are duplicates. Maybe some are so old or even erroneous, and they could be archived.

How to merge a contact:

  • From the Contacts menu click the one or more contact you wish to merge into another contact
  • Click Options at the top and select Merge
  • In the Merge Contacts box select the contact that you want to merge to – this is the contact that will remain – choose Merge.

To Archive unwanted contacts, follow the above but in the Options menu select Archive.

Keep your accounts data clean and reduce the risk of missing something, for example if you look up an invoice in one account, only to find later it was on duplicate account.

2. Credit notes

Do you have unallocated credit notes showing in Bills Awaiting Payment screen? Where possible these should be allocated against invoices or cash refunds allocated to them.

To allocate credit note against invoice:

  • open the credit and to Credit Note Options menu.
  • select Allocate Credit
  • enter the credit amount against correct invoice
  • Click Allocated

3. Duplicate purchases invoices

It is a good practise to check if any outstanding purchases invoices in Awaiting Payment have been duplicated. Sometimes you can write the invoice number incorrectly or use purchase order number instead of the invoice number which would result in the same invoice entered twice. If that happened Xero won’t alert you that the invoice is a duplicate.

To quickly check if you have any errors:

  • go to Bills to Pay and select All
  • Search supplier name
  • Review outstanding invoices, amounts and dates

If you think you have paid the invoice, but it is still showing as outstanding you might have reconciled the payment as spend money and not as invoice payment. In this case, search for supplier or amount within the bank account transactions.

4. Outstanding bank items

With direct bank feeds, managing bank account transactions is fast and pain free. But sometimes Xero and bank statement balances do not match. There can be numerous reasons for this, for example unreconciled transactions entered in Xero, missing statement lines, duplicated transactions or errors recording transfers between accounts. See our article 5 Mistakes to Avoid When Reconciling Bank Transactions in Xero.

To check if your bank account balance and the balance in Xero match review the Bank Reconciliation Report.

5. Xero files

If you are using Xero files you can upload and store any document you need for easy access from anywhere. This will help you declutter your office and keep things in one place. Create a separate folder for bank statements, back up documents, supplier statements, HMRC items etc. All Standard and above users can see Xero Files and it is a perfect way to share documents securely with your team or accountant.

6. Bank rules

Are you using bank rules? Set up correctly Bank Rules will save you time when entering recurring transactions such as bank interest or direct debits where a bill is not entered. You need to set up the criteria accordingly, so the correct transactions are identified. For each bank statement line that matches a rule, Xero suggests a transaction using the condition you have set. See our Bank Rules in Xero article for more details.


While Xero is intuitive and easy to use it is not always simple. There are areas we find users make mistakes and find themselves stuck not knowing how to set Xero straight. If you need help fixing Xero, we are here to help. Give us a ring for a friendly chat today.

Bank Rules in Xero

Why are bank rules so important?

Because the secret to speed up the bank reconciliation process is automation. And bank rules are the key to automating a lot of the work when reconciling the bank account in Xero.

What are bank rules:

The better your rules, the fewer transactions you need to code yourself.

Bank rule is based on the preset parameters. This means if X happens, then code this transaction to Y account. For example, you might have a rule that anytime you are charged the bank fee on your account this transaction is coded to Bank Charges account in Xero.

This saves you typing in the information in the reconciliation screen every time there is a bank fee on your bank statement. Bank rules suggest a new transaction for you with preset contact name, analysis account, description and amount.

When to use bank rules:

Bank Rule transactions are best used for transactions that automatically come out of your bank account (i.e. which you don’t need to physically pay) or the really small things like parking or regular subscription.  Set up bank rules for your regular transactions such as:

  • Wages
  • Equipment Lease
  • Bank Fees
  • Merchant Fees
  • Interest
  • Monthly Insurance
  • Monthly business rates
  • Pension payments
  • Transfers to savings account

There are three types of transactions that bank rules can be created for in Xero:

  1. Spend money transactions
  2. Receive money transactions
  3. Transfers of money between accounts.

bank rules 1

All are set up in the same way and all can save you time and help ensure a consistent approach each month to the reconciliations.

How to create a bank rule:

You can create bank rule either from the bank account page, from the bank reconciliation or from the cash coding page. You can also create bank rule from the Bank rules screen from the Accounts menu by selecting the Bank Account to make a more complex rule with multiple conditions.

The first step in creating bank rule is to select whether it is a spend money, receive money or transfer of money transaction

The ‘Create bank rule’ screen has seven sections in it.

Xero bank rules

1. Every bank rule must have at least one condition, but you can add as many as you need to build the rule.

  • The condition line asks for ALL or ANY of the conditions apply. ALL is used if the rule should apply only when every condition is met, and ANY is used if the rule can be applied when at least one of the conditions are met.

bank rules 3

  • Then you can select an individual text field, such as Payee, Description, Analysis Code and Xero will apply the rule if that particular condition is met. If you select the ‘Any text field’, Xero will search the Payee, Description, Reference and Analysis Code fields on the bank statement line and apply the rule if one of the fields meets the condition.
  • The next condition field allows you to select one comparison option from the below:

 

Equals

Apply the rule if the value in the selected text field exactly matches

Contains Apply the rule if the selected text field contains the value entered
Starts with Apply the rule if the selected text field in the bank statement line starts exactly the same as the value entered
Is blank Apply the rule if the selected text field in the bank statement line Is blank.

The comparison options are linked with the value(s) given in the next box. For the options equals, contains or starts with, enter the relevant value(s) to meet the condition. For example, for the condition below, the bank rule would be applied if the Payee name and Description equals the values given.

bank rules 1

If you create a bank rule when you’re reconciling or cash coding, Xero will automatically add conditions based on the statement line, using an ‘equals’ comparison. Any conditions that you add will also use information from the statement line if possible.

2. The next section allows you to set a contact which can be the Payee, an existing or new contact, entered during reconciliation. If you want to group common items under one name instead of creating a new supplier for each entry, you can create a new contact to group them like all the transaction related to Parking expenses should go under the name ‘Parking’.

3. The third section is allocating fixed value line items. This section is optional.

bank rules 6

4. The next section is to allocate items in the required ratios. Here you must enter a description, account name, VAT rate and the percentage of the total value to be allocated to that account. If you want to allocate the total amount into two different accounts, you can always add a new line and divide the percentage accordingly.

bank rules 5

5. The fifth section is to set the reference. This can be selected from the drop-down box according to your requirement.

6. The sixth section is to set a target bank account on which you want to run the rule. You can also set up this rule to multiple bank accounts, so that you don’t have to create the same rule for each bank account.

7. The last step is to give the rule a title.

Click on the Save option and your bank rule is saved and from now, whenever Xero detects a payment that meets the conditions, it applies the rule automatically. All you have to do is to click ‘OK’ on the bank reconciliation page.

bank rules 9

What happens when you edit or delete a bank rule?

Editing:

By editing a bank rule, you can change any of the details you have entered at the time of creating it. You can either edit a bank rule while reconciling or from the Bank Rules screen. Editing a bank rule doesn’t affect any of the transactions you’ve reconciled with that rule previously.

bank rules 7

Deleting:

You can always delete a bank rule you no longer require by selecting it from the bank rules page in bank accounts. Deleting a bank rule doesn’t affect any of the transactions you’ve reconciled with that rule previously.

Bank rules is just one of many features you will find within Xero which makes your accounting process smoother, faster and more consistent. If you need any help setting up bank rules or other Xero features, talk to one of our trained bookkeepers and we will be happy to assist you.

5 Mistakes to Avoid When Reconciling Bank Transactions in Xero

Xero is cool and easy to use cloud-based accounting software designed for small and medium-sized businesses. However mistakes can occur and carelessness can result in many hours of wasted time trying to locate the error and rectifying it. Let’s look at some of the most common mistakes in bank reconciliation and how they can be avoided.

1. Trusting bank feed 100%

Direct bank feeds are amazing and most of the time we do not have any errors as they work perfectly. However, it can happen that there is a break in the feed and a day or more are missed, especially if you don’t reconnect the bank feed in good time. This will result in unrecorded expenses or customer payments unasigned to their invoice which you want to chase. Sometimes bank lines can be duplicated, for example on a credit card feed or bank feed where the transactions comes in on the day of the purchase and on the day it has cleared the account. If you reconcile all of these you will end up with double income and expenses in your accounts. To make sure everything is in order, regularly check your actual bank account balance with the running bank balance in Xero. If this does not match, you will need to compare your bank statements with Xero to find what is missing or imported twice.

bank balance

2. Paying invoices/bills

When marking sales invoices as paid in sales module or purchase invoices in purchases module, some users mistakenly record payment to/from the wrong bank account. This will cause reconciliation problems later on, as the invoice will not be available to assign bank payment against. To avoid this, always double check the selected bank account in the drop down menu when paying the invoice. Always run reconciliation report to check for anything out of place.

paying invoice

3. Bills to be paid vs reconciliations

When entering bills that need to be paid in Purchases section, some users tend to forget to mark them as paid. Instead they enter the expense again in the bank reconciliation section. Often payments are made direct from the bank or credit card but the bill entered is not being marked as paid. The result is a new transaction being recorded and expense or income duplicated in the accounts. If you are paying a bill that is already entered in Xero, you must be on the Match screen. Only use the Create screen when you are entering a new expense that isn’t already on the system and be consistent.bank match

4. Using ‘Unreconcile’ when you’ve made a mistake

When correcting entered and reconciled bank transaction selecting ‘unreconcile’ doesn’t reverse the error. The coded transaction sits in the bank account as an unreconciled item. This can cause doubled up transactions in your final bank reconciliation. Always select ‘Remove and Redo’ to clear the reconciled line and the transaction.

5. Making transfers between two bank accounts

When recording a transfer between two bank accounts, users tend to code it as a transfer in both accounts, which results in unreconciled transactions in both.  This gives you the wrong bank balance, if not corrected. To avoid this, record the transfer in one bank account. Xero will create the corresponding transaction in the second bank account. All you need to do is go to the second bank account reconciliation screen and match the Xero created transfer transaction.

bank transfer