Xero simplifies the standard accounting process for small businesses very skillfully.
It was built for the web from the ground up, and it supports every major financial element you expect in a double-entry small business accounting solution: sales, purchases, bills and expenses, inventory, and payroll.
You can create records for customers, suppliers, employees, and items.
You can then use these records in standard customizable transactions, such as invoices, purchase orders, and quotes.
Xero also lets you manage fixed assets—something competitors don't do.
The company has added many new features in the last year, including two new business views (Short-Term Cash Flow and Business Snapshot), Stripe integration, and improved setup.
It is close competition for Editors' Choice winner QuickBooks Online Plus, but it lags in areas like usability, mobile access, inventory and expense tracking, and reports.
How Much Does Xero Cost?
The company offers three pricing levels that kick in after a 30-day free trial.
Xero Early ($9 per month) has monthly limits of 20 invoices and quotes, five bills, and unlimited reconciliation of bank transactions.
Xero Growing ($30 per month) adds unlimited billing and invoicing; quotes; and bills.
Xero Established ($60 per month) is the only version to offer multiple currency support.
It also supports projects and Xero Expenses.
Xero allows for an unlimited number of users per organization.
Xero is a more affordable solution than QuickBooks Online; its prices range between $25 and $150 per month.
Zoho Books starts at just $9 per organization per month and offers capabilities in line with Xero's more expensive plans.
Xero has improved its setup tools.
They’re now some of the best offered by any small business accounting website. Early Activities
If you're using another accounting solution (or Microsoft Excel), you may have created a lot of accounting data online already.
Xero makes it easy to import records, transactions, and some other data from QuickBooks Online using its direct-conversion tool.
If you have files already set up in CSV or TXT format (contacts, inventory items, invoices, and so on), you can import those into Xero, too.
If you're starting fresh with Xero, take a look at the dashboard that appears after you’ve created an account for help.
There’s an introductory video that suggests the early actions you should take to set up the site for your own company.
You can put that into practice by following the series of steps outlined below that.
These include connecting your bank accounts, reviewing Xero’s transaction categories, and managing bills.
Links take you to the pages where you can accomplish these tasks.
This is a great setup tool and better than what most competitors offer.
There’s more you should do before you start entering transactions, like creating records for contact and items/services and visiting the company’s settings pages, but this initial screen is a great place to start.
Appearance and Navigation
Xero and QuickBooks Online have very different looks.
Where QuickBooks Online sprawls across the entire screen and uses large fonts and graphics, Xero is more compact, taking up only the center of the screen on some pages.
Each presents key financial data and links to related activities in different ways on their home pages, otherwise known as dashboards.
Both are effective, but I prefer Xero's approach.
The tool displays account balances, with links to reconciliation screens; numbers and graphs representing outstanding invoices and unpaid bills; and total cash in and out.
There’s also an account watchlist and a list of expense claims.
Almost everything on the dashboard is a link that can take you to related pages and actions.
Every accounting product I reviewed has its own navigation system, and I have yet to see one that doesn't work.
In Xero, tabs run horizontally across the top, dividing the site into logical, functional groupings: Dashboard, Business, Accounting, Projects, and Contacts.
Click on your company name in the upper left to access settings and other housekeeping tasks.
The Business menu is where you'll spend most of your day-to-day work time.
It opens to several subfunctions, such as Invoices, Bills to pay, and Products and services.
You can enter bills manually in Xero.
But if you forward them through email as attachments to your own personal Xero address, the site will transfer some of the key data into a draft copy of the bill. Once you drill down into the sales overview, for example, you use standard conventions for data entry and navigation.
Four buttons at the top open tools for creating sales transactions, sending statements, importing sales invoices, and searching for specific invoices and quotes.
Below that is information about your invoices.
Big buttons show you the number and dollar total of invoices in draft form, those awaiting approval and payment, and your overdue sales transactions.
Quotes work the same way: You can see at a glance which are in draft form, sent, accepted, and expired.
Some other accounting sites work similarly, making it easy to see the status of your transactions at a glance.
Click on Awaiting Payment under Invoices, and a new window opens displaying a table of the related transactions (this is the same screen you see when you click on the Invoices link under the Business tab).
While you're there, you can toggle among tabs representing their different statuses.
Buttons at the top of the page take you to screens where you can create new invoices or credit notes; send statements; and import or export invoices in CSV format.
Xero uses equally effective navigation schemes throughout the site, providing both access to data and links to related actions.
It does an excellent job of providing different views of your financial data and the navigation tools needed to work with them.
Who has the best, most effective user experience then? That's a subjective call.
Some users will prefer Xero's no-nonsense, economical kind of approach.
Others like the more spacious, aesthetically pleasing look of QuickBooks Online and Zoho Books.
Making Records
The other area where you'll do a lot of work—especially at first—is Contacts.
Here, you create records for your customers and suppliers that contain both contact information and thorough financial details.
When you click the Contact tab and choose from Customers or Suppliers or All Contacts, you see a list of all that have been created so far, along with totals for what you owe them or what they owe you.
Click the Add Contact button, and the empty record template opens.
You can enter extensive contact information and financial details like default settings and accounts, currency, and due dates.
Xero has added a customer credit limit and blocking tool since my last review.
Once customers have reached their credit limit, the blocking tool prevents you from approving or sending invoices until they're within their limit again.
Once you've saved a contact record, its own home page displays related activity front and center (pending and historical bills and purchase orders, for example), with the primary contact information to the right (you have to click Edit to view the complete record).
You can also create new transactions from this page.
In contrast, QuickBooks Online's customer and vendor records are more comprehensive; they let you store more preferences, like preferred payment and delivery method, language to use in forms, and so on.
Its record templates also display data more economically, using tabs to access hidden details.
Xero also provides record templates for your company's items and services that contain fields for information (price, account, description, and so on) about products you buy and sell.
Click the box in front of the I Track This Item field and Xero asks you to choose your Inventory Asset Account.
Then, it begins tracking inventory in the background.
You can import opening inventory balances or enter them manually and adjust inventory levels.
Overall, the tool's inventory management features are not as advanced as those of Zoho Books, and its record templates are not as thorough as QuickBooks Online's.
You can’t, for example, set a reorder point, though the product records display the number in committed quotes and on order.
If you've built a good supply of contact and item/service records, creating transactions in Xero is a simple process.
The site supplies templates for just about every type of transaction that a small business would need: invoices and repeating invoices, quotes, bills (which can be emailed into Xero as PDFs, with some of their details automatically transferred to a draft form), purchase orders, and credit notes.
Each contains the standard fields you'd expect, including discount and sales tax status.
You can even customize them, for example, by hiding, showing, or renaming fields.
But these forms lack QuickBooks Online's and Zoho Books' more prolific custom fields and easy layout changes.
Xero is in the process of making the transition to a new invoice form that looks better and is less cluttered than the old one. Xero introduced a new invoice form last year, but it was only in the early development stages.
It’s more complete now, though the Classic version is still available, and Xero plans to keep adding features to the new one.
The new invoice form looks more state-of-the-art and less cluttered, and unlike Classic, it auto-saves your work every few seconds.
It contains all of the fields and columns found on the old version, but some of them are hidden.
You can add or remove some of the invoice fields in the header by clicking the three vertical dots in the upper right corner to open a menu.
One option here is Change invoice fields.
Once you select or create a new line item, a small horizontal menu appears below the item description.
You can select your account and tax rate here and attach it to a project if you’ve created any.
Click on the three vertical dots at the end of each line to add a discount, edit the inventory item’s record (or create one if you want to add a new one), or remove the line’s contents.
Whether your company sells items or services, you can create records for them in Xero. This may sound confusing, but it’s not—once you know that you have to click the dot configurations to see the hidden options.
It would help if Xero had labeled these.
But the new invoice form should speed up the customer billing process because of its smart simplicity, besides being more aesthetically pleasing,
Expenses and Sales Taxes
Xero had just introduced a new expense-tracking system when I reviewed it last year.
The Expenses tool provides a better user experience, enhanced functionality, and more flexible user permissions in both the mobile apps (more on that later) and the browser-based version.
When you're working on your desktop or laptop, you can create an expense record (even one using a foreign currency), specify an account, assign it to a project or customer, and add labels, or optionally upload an image.
Expense forms are less detailed than QuickBooks Online's.
They lack fields for payment method and payment account, for instance, and you can't add sales tax to the browser-based form.
Tracking the money you’ve spent is a critical accounting task.
Xero helps you record your expenses. There's another option for getting paper expense receipts into Xero.
The company acquired HubDoc in 2018 and has maintained its tight integration with it (HubDoc also integrates with QuickBooks Online and Bill.com).
The service is just what it sounds like: a central hub for many of your financial documents (statements, invoices, bills, and receipts).
You can set up online connections to your financial institutions and suppliers, and HubDoc will automatically pull in documents and read some of their data (like date and amount), entering it on HubDoc forms based on rules you specify.
Documents can also be uploaded and emailed into the system, or you can snap photos of them using mobile apps.
All data flows into the correct modules in Xero.
After a free trial period, HubDoc costs $20 per month.
Xero handles sales taxes exceptionally well.
You can turn on Sales Tax Lookup in the Advanced Settings menu, and the application will pull in the correct rate based on the physical location of the customer (on most sites, you have to find the rates yourself and enter them).
Xero gets these rates from Avalara, one of the leading vendors of sales tax data solutions, so accuracy is assured (QuickBooks Online does not have this relationship).
The site also offers two sales tax reports: Sales Tax Summary and Sales Tax Audit report.
Tracking Projects
You can track projects in Xero, thanks to tools that have been finalized over the last couple of years.
This is simple project management, but effective for very small businesses or those with uncomplicated projects.
You're required to assign each project to a contact, and you can give it a name and deadline, estimate its budget, and prepare detailed quotes.
Each project has its own home page that displays a running tally of time and expenses charged toward the budget estimate, as well as the amounts that have been invoiced and estimated.
You can easily create and add tasks that will be used in time entries, as well as document expenses and estimated expenses.
If you prefer to bill for the whole project once it's been completed you can do so, but you can also send invoices at any time for specified time and/or expenses.
Xero Innovations
Xero has been working with machine learning and artificial intelligence to add more automated processes to the site, as well as better connectivity with related financial websites.
The company continues to flesh out what was already a very capable, innovative accounting website.
For example, the site’s online sales transactions allow real-time communication and data sharing between you and your customers.
Competitors in this class do not offer a comparable feature.
Smart Lists support very sophisticated searches.
Tracking categories in Xero are similar to the Class feature in QuickBooks Online; both let you assign categories to your accounting transactions.
Over the last year, Xero developed two new tools in response to the financial uncertainty created by the COVID-19 pandemic.
The Short-term cash flow screen projects future bank balances (seven or 30 days out) based on bills and...
Xero simplifies the standard accounting process for small businesses very skillfully.
It was built for the web from the ground up, and it supports every major financial element you expect in a double-entry small business accounting solution: sales, purchases, bills and expenses, inventory, and payroll.
You can create records for customers, suppliers, employees, and items.
You can then use these records in standard customizable transactions, such as invoices, purchase orders, and quotes.
Xero also lets you manage fixed assets—something competitors don't do.
The company has added many new features in the last year, including two new business views (Short-Term Cash Flow and Business Snapshot), Stripe integration, and improved setup.
It is close competition for Editors' Choice winner QuickBooks Online Plus, but it lags in areas like usability, mobile access, inventory and expense tracking, and reports.
How Much Does Xero Cost?
The company offers three pricing levels that kick in after a 30-day free trial.
Xero Early ($9 per month) has monthly limits of 20 invoices and quotes, five bills, and unlimited reconciliation of bank transactions.
Xero Growing ($30 per month) adds unlimited billing and invoicing; quotes; and bills.
Xero Established ($60 per month) is the only version to offer multiple currency support.
It also supports projects and Xero Expenses.
Xero allows for an unlimited number of users per organization.
Xero is a more affordable solution than QuickBooks Online; its prices range between $25 and $150 per month.
Zoho Books starts at just $9 per organization per month and offers capabilities in line with Xero's more expensive plans.
Xero has improved its setup tools.
They’re now some of the best offered by any small business accounting website. Early Activities
If you're using another accounting solution (or Microsoft Excel), you may have created a lot of accounting data online already.
Xero makes it easy to import records, transactions, and some other data from QuickBooks Online using its direct-conversion tool.
If you have files already set up in CSV or TXT format (contacts, inventory items, invoices, and so on), you can import those into Xero, too.
If you're starting fresh with Xero, take a look at the dashboard that appears after you’ve created an account for help.
There’s an introductory video that suggests the early actions you should take to set up the site for your own company.
You can put that into practice by following the series of steps outlined below that.
These include connecting your bank accounts, reviewing Xero’s transaction categories, and managing bills.
Links take you to the pages where you can accomplish these tasks.
This is a great setup tool and better than what most competitors offer.
There’s more you should do before you start entering transactions, like creating records for contact and items/services and visiting the company’s settings pages, but this initial screen is a great place to start.
Appearance and Navigation
Xero and QuickBooks Online have very different looks.
Where QuickBooks Online sprawls across the entire screen and uses large fonts and graphics, Xero is more compact, taking up only the center of the screen on some pages.
Each presents key financial data and links to related activities in different ways on their home pages, otherwise known as dashboards.
Both are effective, but I prefer Xero's approach.
The tool displays account balances, with links to reconciliation screens; numbers and graphs representing outstanding invoices and unpaid bills; and total cash in and out.
There’s also an account watchlist and a list of expense claims.
Almost everything on the dashboard is a link that can take you to related pages and actions.
Every accounting product I reviewed has its own navigation system, and I have yet to see one that doesn't work.
In Xero, tabs run horizontally across the top, dividing the site into logical, functional groupings: Dashboard, Business, Accounting, Projects, and Contacts.
Click on your company name in the upper left to access settings and other housekeeping tasks.
The Business menu is where you'll spend most of your day-to-day work time.
It opens to several subfunctions, such as Invoices, Bills to pay, and Products and services.
You can enter bills manually in Xero.
But if you forward them through email as attachments to your own personal Xero address, the site will transfer some of the key data into a draft copy of the bill. Once you drill down into the sales overview, for example, you use standard conventions for data entry and navigation.
Four buttons at the top open tools for creating sales transactions, sending statements, importing sales invoices, and searching for specific invoices and quotes.
Below that is information about your invoices.
Big buttons show you the number and dollar total of invoices in draft form, those awaiting approval and payment, and your overdue sales transactions.
Quotes work the same way: You can see at a glance which are in draft form, sent, accepted, and expired.
Some other accounting sites work similarly, making it easy to see the status of your transactions at a glance.
Click on Awaiting Payment under Invoices, and a new window opens displaying a table of the related transactions (this is the same screen you see when you click on the Invoices link under the Business tab).
While you're there, you can toggle among tabs representing their different statuses.
Buttons at the top of the page take you to screens where you can create new invoices or credit notes; send statements; and import or export invoices in CSV format.
Xero uses equally effective navigation schemes throughout the site, providing both access to data and links to related actions.
It does an excellent job of providing different views of your financial data and the navigation tools needed to work with them.
Who has the best, most effective user experience then? That's a subjective call.
Some users will prefer Xero's no-nonsense, economical kind of approach.
Others like the more spacious, aesthetically pleasing look of QuickBooks Online and Zoho Books.
Making Records
The other area where you'll do a lot of work—especially at first—is Contacts.
Here, you create records for your customers and suppliers that contain both contact information and thorough financial details.
When you click the Contact tab and choose from Customers or Suppliers or All Contacts, you see a list of all that have been created so far, along with totals for what you owe them or what they owe you.
Click the Add Contact button, and the empty record template opens.
You can enter extensive contact information and financial details like default settings and accounts, currency, and due dates.
Xero has added a customer credit limit and blocking tool since my last review.
Once customers have reached their credit limit, the blocking tool prevents you from approving or sending invoices until they're within their limit again.
Once you've saved a contact record, its own home page displays related activity front and center (pending and historical bills and purchase orders, for example), with the primary contact information to the right (you have to click Edit to view the complete record).
You can also create new transactions from this page.
In contrast, QuickBooks Online's customer and vendor records are more comprehensive; they let you store more preferences, like preferred payment and delivery method, language to use in forms, and so on.
Its record templates also display data more economically, using tabs to access hidden details.
Xero also provides record templates for your company's items and services that contain fields for information (price, account, description, and so on) about products you buy and sell.
Click the box in front of the I Track This Item field and Xero asks you to choose your Inventory Asset Account.
Then, it begins tracking inventory in the background.
You can import opening inventory balances or enter them manually and adjust inventory levels.
Overall, the tool's inventory management features are not as advanced as those of Zoho Books, and its record templates are not as thorough as QuickBooks Online's.
You can’t, for example, set a reorder point, though the product records display the number in committed quotes and on order.
If you've built a good supply of contact and item/service records, creating transactions in Xero is a simple process.
The site supplies templates for just about every type of transaction that a small business would need: invoices and repeating invoices, quotes, bills (which can be emailed into Xero as PDFs, with some of their details automatically transferred to a draft form), purchase orders, and credit notes.
Each contains the standard fields you'd expect, including discount and sales tax status.
You can even customize them, for example, by hiding, showing, or renaming fields.
But these forms lack QuickBooks Online's and Zoho Books' more prolific custom fields and easy layout changes.
Xero is in the process of making the transition to a new invoice form that looks better and is less cluttered than the old one. Xero introduced a new invoice form last year, but it was only in the early development stages.
It’s more complete now, though the Classic version is still available, and Xero plans to keep adding features to the new one.
The new invoice form looks more state-of-the-art and less cluttered, and unlike Classic, it auto-saves your work every few seconds.
It contains all of the fields and columns found on the old version, but some of them are hidden.
You can add or remove some of the invoice fields in the header by clicking the three vertical dots in the upper right corner to open a menu.
One option here is Change invoice fields.
Once you select or create a new line item, a small horizontal menu appears below the item description.
You can select your account and tax rate here and attach it to a project if you’ve created any.
Click on the three vertical dots at the end of each line to add a discount, edit the inventory item’s record (or create one if you want to add a new one), or remove the line’s contents.
Whether your company sells items or services, you can create records for them in Xero. This may sound confusing, but it’s not—once you know that you have to click the dot configurations to see the hidden options.
It would help if Xero had labeled these.
But the new invoice form should speed up the customer billing process because of its smart simplicity, besides being more aesthetically pleasing,
Expenses and Sales Taxes
Xero had just introduced a new expense-tracking system when I reviewed it last year.
The Expenses tool provides a better user experience, enhanced functionality, and more flexible user permissions in both the mobile apps (more on that later) and the browser-based version.
When you're working on your desktop or laptop, you can create an expense record (even one using a foreign currency), specify an account, assign it to a project or customer, and add labels, or optionally upload an image.
Expense forms are less detailed than QuickBooks Online's.
They lack fields for payment method and payment account, for instance, and you can't add sales tax to the browser-based form.
Tracking the money you’ve spent is a critical accounting task.
Xero helps you record your expenses. There's another option for getting paper expense receipts into Xero.
The company acquired HubDoc in 2018 and has maintained its tight integration with it (HubDoc also integrates with QuickBooks Online and Bill.com).
The service is just what it sounds like: a central hub for many of your financial documents (statements, invoices, bills, and receipts).
You can set up online connections to your financial institutions and suppliers, and HubDoc will automatically pull in documents and read some of their data (like date and amount), entering it on HubDoc forms based on rules you specify.
Documents can also be uploaded and emailed into the system, or you can snap photos of them using mobile apps.
All data flows into the correct modules in Xero.
After a free trial period, HubDoc costs $20 per month.
Xero handles sales taxes exceptionally well.
You can turn on Sales Tax Lookup in the Advanced Settings menu, and the application will pull in the correct rate based on the physical location of the customer (on most sites, you have to find the rates yourself and enter them).
Xero gets these rates from Avalara, one of the leading vendors of sales tax data solutions, so accuracy is assured (QuickBooks Online does not have this relationship).
The site also offers two sales tax reports: Sales Tax Summary and Sales Tax Audit report.
Tracking Projects
You can track projects in Xero, thanks to tools that have been finalized over the last couple of years.
This is simple project management, but effective for very small businesses or those with uncomplicated projects.
You're required to assign each project to a contact, and you can give it a name and deadline, estimate its budget, and prepare detailed quotes.
Each project has its own home page that displays a running tally of time and expenses charged toward the budget estimate, as well as the amounts that have been invoiced and estimated.
You can easily create and add tasks that will be used in time entries, as well as document expenses and estimated expenses.
If you prefer to bill for the whole project once it's been completed you can do so, but you can also send invoices at any time for specified time and/or expenses.
Xero Innovations
Xero has been working with machine learning and artificial intelligence to add more automated processes to the site, as well as better connectivity with related financial websites.
The company continues to flesh out what was already a very capable, innovative accounting website.
For example, the site’s online sales transactions allow real-time communication and data sharing between you and your customers.
Competitors in this class do not offer a comparable feature.
Smart Lists support very sophisticated searches.
Tracking categories in Xero are similar to the Class feature in QuickBooks Online; both let you assign categories to your accounting transactions.
Over the last year, Xero developed two new tools in response to the financial uncertainty created by the COVID-19 pandemic.
The Short-term cash flow screen projects future bank balances (seven or 30 days out) based on bills and...
