REVIEW: Xero

The cloud and small business accounting systems seem made for each other. Indeed, when delivered over the Internet, online bookkeeping services can take much of the hassle out of day to day tasks such as raising and chasing invoices, reconciling bank accounts, paying bills and generally staying on top of small business finances. Most are pay-as-you-go, and you don’t even have to worry about backup—it’s all taken care of by the service.

No wonder, then, that online accounting services are proving popular, particularly in the small business sector. A sector previously dominated by desktop products from Sage and Intuit, both of which now have their own SaaS (Software-as-a-Service) products.

But you don’t have to stick with the big names, there are lots more besides. Including Xero which, with no legacy baggage to worry about, seems to have got it right when it comes to the trade-off between accounting functionality and the need to make the service easy to use by professionals and non-accountants alike.

Bookkeeping to go

Getting started with Xero couldn’t be easier. Simply browse to the Xero Web site and either sign up for a free trial or, if you want to jump straight in, a full subscription. All that’s needed is a credit card and, with the option to cancel at any time, the maximum risk is just one month’s fees. And, those are pretty minimal, starting at just £12 (ex. VAT) per month, for which contractors and others with limited requirements can raise up to five invoices and reconcile 20 bank items per month.

Pay just £7 more (£19/month ex. VAT) and those transaction limits are removed altogether. While for £24/month (ex. VAT) there’s the option to work in multiple currencies complete with real-time application of the latest exchange rates as you go. Another plus here is that, regardless of which level of service involved, Xero can be shared by multiple users with concurrent access and no extra fees required—other suppliers take note.

Companies with more than one business can also get a further 25% discount and there are packages too for professional accountants. Added to which support is included in all levels of subscription, accessed in the first place via an online portal and e-mail.

Going equipped

No special hardware or software is needed to use Xero, just a PC or Mac, an Internet connection and a browser. Moreover, there’s nothing to download, install or update, the only exception being an iPhone app for mobile users, with an Android equivalent in development.

The Web-based interface is clean and easy to follow plus, despite being a hosted service, we found Xero very quick and responsive. Indeed, much of the time it was hard to tell we were using hosted software and not a desktop application.

One issue could be that, as a cloud-based service, you have no control over where your data is located. In fact Xero runs on Rackspace servers based in Houston, Texas which could be a problem for some.

That said, it’s not like signing up for a shared service like Facebook. Data ownership remains with the customer at all times, plus there’s a strict privacy policy and a high level of security, including 128-bit SSL encryption of all transactions plus third-party audits and inspections.

Getting started

As with any accounting program some initial setup work is required and the time required will depend on the size and type of business involved. Those with existing Sage and other accounting packages can import data electronically, while others will need to get by with manual input of bank balances plus any outstanding invoices, purchase orders and other data that needs to be transferred.

Wizards help with these tasks and despite being available in multiple countries it was good to find UK currency and bookkeeping terms used throughout. More than that there’s full support for all available VAT schemes, including cash accounting and flat rate payments.

On the downside, you can’t file VAT returns automatically. However, Xero can produce the figures required—and display them using facsimiles of the HMRC forms—then take you to the right screen on the government Web site to type in the numbers yourself. Which, for many, is just as good, if not, better.

Accounts receivable

When it comes to getting cash in, product and service-based invoicing can both be handled and there’s even a basic inventory tool to help where lots of widgets are involved. Otherwise all that’s needed is to type in the relevant facts and figures leaving Xero to automatically add customers and suppliers to your contact list as you go and apply standard tax rates selected from familiar drop-down lists.

There’s no option to generate quotes and convert them to invoices later on, or any form of time tracking capability. However, this and other functionality, including eBay integration, can be provided through add-ons available from a number of third-party vendors.

Draft invoices can also be raised for later approval and release. Plus, once approved invoices, statements and credit notes can be printed or e-mailed to customers as PDFs, with a neat batch release option to, for example, queue up statements for sending at the end of the day or overnight.

There’s also plenty of scope for customisation. In fact when it comes to not just invoices, but statements and credit notes you can either go with what’s provided; add your own logo or download the.docx templates Xero uses and edit them to fit your exact needs.

Staying on top

As well as accounts receivable and payable a major selling point with Xero is the way in which it continually works to reconcile real financial transactions against what’s being entered in the books.

To help with this it’s possible to import electronic bank and credit card statements and even set up real-time bank feeds into Xero. Direct BACS support is also available while eBay traders and others can link to their PayPal account and use that for payments in and out.

Additionally, Xero can learn how payments and charges are being assigned to help automate the reconciliation of bank and credit card transactions. It takes a little time for this learning to accumulate, but once there it’s a bit like having an assistant continually checking what’s coming in and going out, to make sure that users know exactly how much cash they have in the bank and what their credit card and other liabilities are.

There’s also a dashboard display for an at-a-glance summary of the current position, backed up by a good set of reporting tools for long term analysis and planning.

Almost perfect

Getting to grips with Xero proved relatively painless, with a straightforward and very responsive interface with little of the accounting jargon found in some bookkeeping packages. We also liked the iPhone app which, among other options, enabled us to scan in receipts and upload them direct to the Xero database.

There are a few omissions, such as the inability to generate quotes already mentioned. A full payroll option is also missing although you can perform a “pay run” to print payslips and make payments based on PAYE figures from an accountant or the HMRC Web site—an option many small businesses will prefer.

Moreover, when payroll is added (there are plans to do this) it will become available to all users without the need for any effort on their part. Just as when other updates and bug fixes are released, the SaaS model making Xero a low maintenance as well as low-cost and effective small business accounting solution.