In our attempt to come up with a standard for comparing online
As we review various online accounting products we will point out things that we like and things that we feel are missing. If a product has a whiz-bang exciting feature but it doesn’t cover the basics, there is a problem. So, we have our list of features that we will be using to compare any cloud (online) based accounting product that we look at.
I certainly don’t consider our list to be all-inclusive, and I’m open to suggestions as to what could be added. One of the dangers of making a list like this is that we tend to think of the features that we have in the product that we are the most familiar with (in my case,
I suggest that you start off by reading my Xero Overview article, as I cover some of the special features of this product in more detail there.
It is the nature of Online software products that they evolve constantly, so as time goes on some of the feature we say are NOT there may be added. If I miss something, please feel free to point it out.
Product Details/Capacity
We’ll start with some basic information.
Number of transactions | No Limit |
Number of records in a list | No limit |
Database size limit | Aimed at 100’s of invoices per month, but not 1,000’s |
Maximum number of users | No limit |
Underlying database | Microsoft SQL Server 2008 |
Web browser support | Full support for all |
Is there support for mobile devices? | iPhone, Android apps, provides many functions but not full access |
Is there an API that developers can use to create add-on modules? | Yes |
Can you have more than one company file on one subscription? | No, but there is a discount for additional subscriptions |
Multiple companies | Yes, with separate subscriptions |
The Business Edition has 5 “user roles”: Financial Advisor (which we discussed in our overview article), Standard, Invoice Only, Read Only and Payroll Admin for Pay Run. If you are a Xero Certified Partner, the Partner Edition adds some additional roles.
You have to pay attention to what these different roles provide, as there are some terminology differences with what we would expect in the US. For example, with the Invoice Only role, this includes A/R and A/P access because Xero calls both A/P and A/R transactions “invoices”.
The Standard role is ALMOST full access – this user role can’t “publish” reports, access
The Financial Advisor role provides full control, and it provides you with functions that are not available to the owner of the file.
As discussed before, one of the significant advantages of this product is that you have an unlimited number of users. You can have different users with different roles, and you can have multiple “accounting professionals” accessing your file. You pay “per company file” rather than “per user”.
Essential Features
Everyone has their own list of “essential features”, things that an accounting product MUST do that you can’t live without. Of course, what you have on your list is probably different than what I have on my list. Here’s our list, and how Xero stacks up:
General Ledger
Double entry? | Yes |
Are Accounts required? | Yes |
Supports different Account Types? | The typical account types are supported. You can change order and group on some of the reports (i.e. Balance Sheet, Income Statement, Budget Variance). |
Does the product enforce debits = credits? | Yes |
Can you easily modify the Chart of Accounts? | Yes. There are tabs for different types of accounts. You can change account type even on the accounts set up by Xero. You can change the account name and description. |
Journal Entries | Yes (but it is hard to find, under Reports/Journal Reports). |
Are all Equity entity types supported? | Yes |
Is year’s end income automatically closed to the equity accounts? | Still investigating this, sorry |
Does the user need to allocate net income into proper equity accounts if this is not a corporation? | Yes |
GAAP compliant financial statements | Includes Balance Sheet and Income Statement, but not a Statement of Cash Flows. Not GAAP, but working on it. |
Support both Cash and Accrual | Some reports can be run on a Cash basis: Balance Sheet, Income Statement, Budget Variance, Account Transactions, General Ledger, Detailed Account Transactions |
Support for class or departmental tracking | Yes, but limited to two major categories. This is called “Tracking” |
Banking / Cash Management
Support for multiple bank accounts | Yes |
Download transactions from bank | Yes – automatic bank feeds |
Import banking transactions from |
Yes – you can import OFX, QIF or CSV files |
Automatic coding/classification of downloaded bank transactions | Yes |
How do you batch enter a deposit? For example, is there an Undeposited Funds account? | You don’t (more on this below) |
Is bank reconciliation streamlined? | Yes: Reconciliation basically means matching with downloaded or imported transactions |
Can you “unreconcile” a bank account? | Yes: You can unreconcile one transaction at a time by checking it off in the Accounts Transaction tab and then clicking on the Status, You get a pop up saying you shouldn’t do it – but you can tell Xero not to show the message again. |
Can you print checks? | Yes |
Can you print checks on blank check stock? | No |
Can you make ACH payments? | Not directly – you have to use an add-on like Bill.com |
Is there an integration with a cash flow management system like Bill.com or Bill & Pay? | Yes, to Bill.com and PayPal |
Connection to payment gateways | Using PayPal – you can set up a link on invoices. PayPal is set up as a bank account and then you set up a Bank Feed. |
Requires a specific merchant service provider? | N/A |
Regarding batch deposits and “undeposited funds”: This is an area where we have to do some more digging. It could be that we haven’t figured it out. We tried to post to the Suspense account (which it accepted) and then do a transfer, but that didn’t work. When we went to do a transfer, the only choices were “credit cards” or “bank accounts”, even though we had used the Suspense account when receiving the payment. It appears that we will have to do a journal entry. You need to receive each payment and say what account it was deposited into – which increases cash and decreases A/R. When you get to the reconciliation screen, you can match up multiple payments to one deposit. However, what if you have both sales and credits in a single batch? How do you match up a batch deposit (that may be negative! with multiple sales/credits combinations? This is an area that needs further investigation.
Reversing a reconciliation (unreconcile) is a feature that can be complicated to do in some accounting systems. It is fairly simple in Xero, for the Financial Advisor, once you find where to go.
Accounts Receivable
Can you set up customers and jobs? | Only customers |
Customer ID | Text |
Can you customize how customer names are displayed (such as, last name/first name)? | No |
Can you track A/R by customer? | Yes |
Are there sub-ledger reports such as open invoices and aging? | Yes |
Can you customize forms templates? | Yes |
Support for batch invoicing | Yes – create a group and then click on the drop down next to create invoices and choose the group and it will create draft invoices to be then approved later |
Does it create Statements? | Yes |
Accounts Payable
Can you track A/P by vendor? | Yes – can schedule batch payments which can then be approved later |
Are there sub-ledger reports such as open bills and aging? | Yes |
Support for Purchase Orders | No |
Can you assign a customer to an expense? | No |
Can you mark an expense as billable? | No |
Can you print a bill payment stub? | No – but you can go back to Paid Vendor invoices and print to PDF |
Credit Cards
Support for credit card (purchasing) transactions | Yes – Can set up credit card accounts under Add Bank account |
Can you download credit card transactions? | Yes |
Can you import credit card transactions from Excel/CSV? | Yes – OFX, QIF or CSV |
Is there automatic coding/classification of downloaded transactions? | No – you can set rules as you can with banking transactions |
Is there a streamlined way of recording and reconciling credit card batch deposits? | Can accept credit cards through PayPal account |
Sales Tax
For US customers, management of sales tax is a key feature. It is also an area that many newer accounting systems don’t handle adequately for many businesses.
Is there sales tax tracking? | Yes, but this is an area that may need more work for the US market (see below). |
Can you get a report showing taxable and non-taxable sales? | Yes: You can get a report of taxable vs non taxable, if you set up rates correctly |
Can you drill into reports to see taxability status of each sale and each item on the sale? | Yes: From the Sales Tax Audit report |
Is the sales tax liability report handled properly on the Balance Sheet? | It appears to be, but we need to investigate further |
Is the sales tax report available in both Cash and Accrual basis? | When you turn on sales tax, you identify if you are paying on cash or accrual |
Is customer taxable status set based on the ship-to address automatically? | No |
The sales tax feature of Xero is one that we need to spend more time investigating. The basics are there – you can set up sales tax rates, mark items in an invoice as taxable, see reports of tax collected.
You can set up “compound” tax rates if you wish. However, note that you don’t specify a tax agency for any tax rate (or component). There is one sales tax liability account that all taxes are sent to.
I like the ability to create an invoice where you have a different sales tax on a line by line basis. This is useful in some situations.
There is no “pay sales tax” function, so I’m concerned with how payments and other adjustments will be handled by Xero. Again, this is an area that we need to spend more time in understanding.
Here’s the sales tax summary report, with the tax broken down by the sales tax component.
The matching sales tax audit report shows the details of the taxable transactions, BUT it doesn’t break things down by the sales tax component.
If you have any sort of adjustment to make in sales tax you have to adjust the original transaction (invoice) or try to come up with some new invoice to correct things. There doesn’t appear to be a good way to enter an adjustment for sales taxes directly. You can enter a manual journal (a journal entry) to the sales tax account, but this isn’t reflected in the sales tax reports. You can create a check to pay your sales tax, but this won’t affect the sales tax reports either.
Reporting
Customizable reports | Sort of. All reports are “drillable”, some reports have a lot of options, but others have no options. You can “publish” a report, which saves it as of that date (nice feature). |
Report filtering and subtotaling | Limited |
Export reports | Yes: PDF and Google Docs |
Formulas, formatting, outlining | Formulas and formatting for financial statements, no outlining |
There are some nice features, there are some missing features, for reports. There needs to be more flexibility in many of the reports.
In my Xero overview article I talked about publishing management reports, which I find to be a powerful and useful feature for the financial advisor user.
In the Reports page you can mark the star by your favorite report to have is show on the Reports dropdown menu.
All reports can be exported to PDF, Excel, or to Google Docs (a nice touch).
Accountant Features
I’ve talked about the Financial Advisor role in this and my previous article. This is only available if you are using the Xero “Partner” version. Membership in the Xero Partner program is free to qualified companies, although you do have to pay for a certification class (the fee is reasonable) for at least one staff member. To maintain your membership you need to be working with at least three Xero clients. There is a sliding scale of benefits based on the number of clients you are working with.
Accountant Dashboard to support multiple clients | Certified partners get a special version that provides additional features. You can group clients together, assign staff to clients, etc. |
Mass re-categorization of transactions | No: “Cash Coding” allows you to classify downloaded or imported bank/credit card transactions that haven’t been matched. |
Mark journal entry as “adjusting” | No |
Working Trial Balance | No: There is a Trial Balance report if you are the Financial Advisor |
Lock transactions (with separate password) | If you are the Financial Advisor you have two “locking dates”, Period and Year End |
Audit Trail | Every transaction has a history attached which shows who worked on the transaction. |
Other special Accountant features | If you are the Financial Advisor you can run management reports and add notes. |
Other Important Features
These are features that are important for SOME businesses, but not all. From our viewpoint we put these as “important” but not “essential” – but of course, if YOUR business NEEDS one of these features, that could be important to YOU. It is important to consider your type of business.
Features Not Supported
Here are some general categories of features that Xero does NOT support directly. NOTE that some of these features may be available through an add-on product for an additional fee. We won’t list the details of the specific criteria we have in each of these areas:
- Inventory
- 1099s
- Job Costing
- Ecommerce
- Time Tracking
- Point of Sale:
Budgets
Budget tracking is supported. You can export budgets to Excel, make changes, and import back in. There is a Budget Summary and Budget Variance report. Multiple budgets are supported.
Fixed Assets
There is support for fixed asset tracking. It supports straight line and declining balance methods. There is a Fixed Asset Reconciliation report comparing the Balance Sheet to the Fixed Asset Register, and a depreciation register.
Payroll
There are some features that tend towards Payroll support, but it isn’t really a payroll system on its own. You can set up a manual payroll that creates checks, but you have to fill in the dollar amounts for everything. It might work if you have a very small number of salaried employees.
There are four pay-related reports, but this is very limited. There are no integrated tax tables.
ADP payroll is an add-on feature that expands on this.
Integrated payroll | Sort of |
Outside payroll services | ADP |
Payroll includes automated job costing | No |
e-pay taxes, e-file forms | No |
Track worker’s comp | No |
International Support
As you might suspect, for a product created in New Zealand, there is support for international features.
Multiple Currency support | Yes: But only in the more expensive “Large” price plan. Exchange rates are updated hourly from XE.com (this can be adjusted) |
Available in non-US markets | Yes: New Zealand, Australia, United Kingdom, and a “Global” version, available in over 100 different countries |
Language options | English only |
Support for non-US tax (VAT, etc.) | Yes |
How do financials get updated for the current exchange rate? | A/P, A/R and bank accounts are updated in real time |
Company Information
Xero was founded in 2006 in New Zealand by Rod Drury and Hamish Edwards. It has over 300 employees globally. The company is listed on the New Zealand Stock Exchange. They acquired Workflow Max in 2012 to add practice management capabilities.
The product was released in 2007 and has at least 110,000 paying customers worldwide. The target market is small service-based businesses.
For US customers they operate data centers in Dallas and Chicago, managed by Rackspace. These are SSAE 16 Type II SOC 1 compliant data centers.
Product Support
Support is free via email. Chat room and phone support is not available. There is an internal customer support team in every region that they operate in (New Zealand, Australia, USA, United Kingdom).
In-product help is extensive and easy to search (very, very good). There are many videos available.
What Do We Think?
Xero is a very interesting product that is a serious contender in the online accounting market. The company is well funded, and is working hard to bring their product into the US marketplace. I’m very impressed with the Xero Partner program and how they are working to support accounting professionals.
As with just about all of the online accounting products I’ve looked at so far, the product covers the basics of what a business needs, but they don’t have the breadth of features that people expect if they are moving up from a desktop accounting system. Time will tell if this product can support the wide range of business types that exist.
Some things we like (a condensed list):
- Vendors can send their bills directly into your a/p and vice versa (Xero to Xero, as discussed in the overview article)
- You can invite an unlimited # of users to access your organization
- You can archive customers or vendors
- You can create groups for customers or vendors
- You can use the same name for both customer or vendor
- It is easy to merge names
- You can “unmerge” by restoring the merged contact from the Archive Contact List
- The General Ledger has an “Exceptions” tab to identify transactions, such as those where Tax has been changed or amount of transaction is unusually high or low compared to other transactions in the account
- The user can write notes to their accountant ( or others) about expenses so that the accountant/supervisor knows where to classify
- There is an approval process when entering invoices and bills
- You can add attachments to a bill
- You can save customization settings on a report to be used with another company
- Flexible chart of accounts
- You cannot journal into bank accounts, a/r or a/p, which is really good, protects things
- The cash code feature if you are a financial advisor
- You can schedule a bill to be paid on a specific date
- You can’t “archive” an account if there is a balance (archive is similar to “make inactive”)
- You can create your own invoice form using a Microsoft Word docx template
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Recurring Bills, which then show on dashboard
Things that are a bit odd or disappointing:
- Naming conventions: For example, it refers to vendor bills as “vendor invoices” – this may be confusing. Credit transactions are called Credit Notes, not Credit memos
- No cash flow projections
- Only one A/R and A/P account
- Only two columns for “Tracking” (the equivalent of classes)
- Not GAAP yet
- You cannot format report dates in the “US format”, it is always in the New Zealand format
- The names that have been merged – is still retained on the Archived Contact List.You can have two contacts with the same name – one active and one archived – could be confusing
- When you create an invoice – there is no drop down to look up customer. When you start typing, it gives you listing of those customers that start with that letter. That could be confusing. Alternatively, you could start from the customer list, choose the customer and then click on Add Invoice. Same thing happens on a Vendor Invoice – no drop down for the Vendor names
- No service items,discounts
- You must have a quantity on “Spend Money” transaction – can’t just put in total $ amount
- Can change what account an item posts to in any given transaction
- You can’t add items on the fly
- Date ranges in reports are a pain. I ran into this a lot when looking at the sales tax reports. For example, the default date range would be April 1st through April 30th – if I changed the starting date to May 1st, the ending range didn’t change automatically, so the program would give me a warning about the date. If I went to edit the ending date, it defaulted to the earlier, invalid date. Annoying. No easy way to enter things like “last month”, “this year”, etc.
- There is no quote/estimate feature. You can create an invoice form and call it “quote”, and save it without “approving” then there is no accounting, so it is like a “pending” invoice essentially.
- I don’t like the “minor adjustment” feature that posts to a “rounding” account (as explained in the overview article)
- When paying bills, your checks go to a PDF format. You may have to do tweaking to get things to line up.
In my article about Cloud vs. Desktop Accounting I listed some points of concern about cloud accounting products. Here are a few of the issues that I list there, and how Wave addresses them.
- Familiarity: Every cloud accounting program has its own look and feel, so there is no “familiarity”. One added concern with Xero, though, is terminology. Sometimes it is obvious that this is a product that started in a non-US country. “Credit Note” instead of “Credit Memo” for example. But, they are working on terminology…
- Feature Rich: The product isn’t too bad, but there is a lot of room to grow. It is still just addressing your basic service-oriented business. No job costing, inventory control, etc.
- Extensibility: Xero has an API (programming interface) available to companies that want to develop add-on products. I’ve not looked at this in detail, yet, but I will soon. There are a number of add-on products available, but a lot of them are from companies that I’m not familiar with. That in itself isn’t bad – but I’m curious as to how many of these add-on products will fit (and be supported in) the US market.
- Security/Privacy: For US customers they operate data centers in Dallas and Chicago, managed by Rackspace. These are SSAE 16 Type II SOC 1 compliant data centers.
- Backups: Offsite backups are made nightly, and a transaction log is backed up every ten minutes. However, Xero fails in the same way that all of the cloud accounting products seem to fail – you can’t make archival copies on your own, that you can restore if you need to roll back to a particular period.
- Data Ownership: You can export reports to Excel, such as your detailed general ledger, chart of accounts and contacts. This is an area that all cloud accounting products fall short in.
This post was written by Charlie Russell. Thanks to MB Raimondi for her significant contributions to this article.