Xero Accounting & Inventory Management – Common Questions Answered
What is Xero Accounting Software?
Xero accounting software is a cloud-based solution designed primarily for small to medium-sized businesses. It helps manage key financial tasks such as invoicing, bill payments, bank reconciliation, payroll, expense tracking, and basic inventory management. Xero allows businesses to have real-time financial data accessible from anywhere, streamlining financial processes and improving accuracy. Additionally, it integrates seamlessly with numerous third-party applications like inventory management systems, point-of-sale platforms, and ecommerce solutions, making it an ideal choice for businesses looking to automate and simplify their accounting workflows.
Xero is generally an excellent fit for small to medium-sized businesses, but it’s not suited for everyone. Businesses that typically wouldn’t benefit from Xero include:
- Large enterprises or corporations: Xero may lack the advanced, enterprise-level financial controls, detailed reporting, and extensive customization that larger corporations typically need.
- Businesses with highly complex inventory needs: If your operations involve multi-location inventory, serial number tracking, complex manufacturing processes, or advanced warehouse management, Xero’s built-in inventory management might not be sufficient unless paired with a specialized inventory management system.
- Companies requiring advanced industry-specific features: Some businesses, such as construction firms needing robust job costing or nonprofits requiring intricate fund accounting, might find Xero too limited without extensive customization or third-party integrations.
- Businesses needing direct, instant customer support: Xero primarily offers online support, which might not be ideal if your business requires immediate phone support or extensive in-person training.
- Businesses heavily reliant on cash-based accounting: Small sole proprietors or micro-businesses operating primarily on cash transactions and who don’t need detailed accrual-based financial reporting may find simpler software more beneficial and cost-effective.
Businesses needing advanced enterprise capabilities, very specialized accounting features, or direct instant support might consider alternatives to Xero.
What Is Xero Used For?
Xero is cloud-based accounting software designed for small to medium-sized businesses. It simplifies bookkeeping tasks like invoicing, bill payments, bank reconciliation, and basic inventory tracking. Ecommerce sellers and warehouse managers particularly benefit from using Xero because it integrates seamlessly with inventory management systems (IMS) like Finale, allowing automatic synchronization of financial and stock data. Key uses include:
- Invoicing and billing
- Expense tracking
- Bank reconciliation
- Financial reporting
- Basic inventory management
What Is the Difference Between Xero and QuickBooks?
Xero and QuickBooks are both powerful accounting platforms, but they differ in several key areas:
- Pricing: Xero is generally more affordable, especially with unlimited user access.
- User Experience: Xero offers a simpler, more intuitive interface.
- Inventory Management: Both platforms provide basic inventory features, but Xero integrates smoothly with dedicated systems like inventory bookkeeping and inventory accounting.
- Customer Support: QuickBooks offers direct phone support, whereas Xero primarily uses email and callback support.
| Xero | QuickBooks Online | |
| Entry Level Plan | Usually $20 / month Early Plan | Usually $38 / month Simple Start Plan |
| Middle Level Plan | Usually $47 / month Growing Plan | Usually $75 / month Essentials Plan |
| Premoium Level Plan | Usually $80 / month Established Plan | Usually $115 -$275 /month Plus & Advanced Plan |
Can I Learn Xero by Myself?
Yes, Xero is user-friendly, making it easy for non-accountants to learn independently. Xero provides comprehensive resources, including tutorials, guides, and a demo company file to practice. If you manage inventory, connecting Xero with an IMS like Finale further simplifies financial and inventory tasks.
What’s Cheaper, Xero or QuickBooks?
Generally, Xero is cheaper than QuickBooks Online. Xero’s plans start at lower monthly prices, offer unlimited user access, and include basic inventory tracking even at the middle tier. QuickBooks typically charges higher rates, especially if you require the inventory features or multiple users.
Pros & Cons of Xero
Pros:
- User-friendly interface
- Affordable pricing
- Unlimited user access
- Extensive integration options, notably with systems like Finale
- Strong mobile app
Cons:
- Limited phone support
- Inventory management is basic
- Limited advanced accounting features compared to QuickBooks
Do I Need an Accountant to Use Xero?
No, Xero is designed for easy use by non-accountants. However, having an accountant can be beneficial for complex accounting tasks, tax filings, and financial strategy. Integrating Xero with an IMS like Finale further simplifies operations, minimizing the need for extensive accounting knowledge.
Can Xero Do Payroll?
Yes, Xero provides payroll services, either directly or through integrations, depending on your region. In the UK and Australia, Xero offers built-in payroll that lets you manage employee pay, taxes, and payslips. In the United States, Xero partners with Gusto to provide a payroll solution, automating payroll processes and keeping your accounting records up-to-date.
Does Xero Have Class Tracking?
Xero doesn’t have “class tracking” exactly like QuickBooks, but it provides a similar feature known as Tracking Categories. You can assign up to two active tracking categories (like department, location, or project) with various labels, enabling detailed financial reporting and analysis. This helps businesses easily analyze performance across different segments or regions.
Does Xero Integrate With Square?
Yes, Xero integrates directly with Square and their point of sale (POS) system, automatically syncing daily sales data, fees, and payment information into your accounting records. Transactions from Square are imported into Xero as daily summaries, streamlining the reconciliation process by matching transactions against your bank deposits.
Does Xero Integrate With Shopify?
Yes, Xero offers a Shopify integration, syncing sales data from your Shopify store into Xero. Each day, your sales, fees, and other relevant financial data flow into Xero as summarized invoices, simplifying accounting, and reconciliation. This integration saves ecommerce businesses substantial manual effort.
How to Reconcile in Xero
Reconciling in Xero is straightforward. Go to your bank account within Xero and open the Reconcile tab. You’ll see imported bank statement lines on the left and suggested matches on the right. Match each bank line to the corresponding transaction in Xero, or create a new transaction if needed. For regular, recurring transactions, setting up bank rules can automate reconciliation significantly. Once every line is matched or accounted for, your bank balance in Xero will accurately reflect your real-world account activity, ensuring precise and up-to-date financial information.
Can Xero Track Inventory?
Xero provides basic inventory tracking capabilities, allowing you to monitor quantities and average cost of your stock items automatically. However, it lacks advanced inventory features such as multi-warehouse management, serial number tracking, or automated reordering. For enhanced inventory management needs, businesses typically integrate Xero with an advanced inventory management system (IMS), such as Finale, to efficiently manage detailed inventory operations and maintain accurate financial records.
Xero vs QuickBooks Online for Inventory Management
Both platforms handle basic inventory tracking, but there are key differences:
- Xero offers basic inventory tracking in all plans but lacks advanced features like low-stock alerts.
- QuickBooks provides slightly more advanced built-in inventory management but at higher costs.
- For advanced needs, integrating Xero with an IMS like Finale delivers powerful inventory capabilities beyond the built-in tools, including managing Amazon FBA inventory.
Can Xero Connect to an IMS?
Absolutely. Xero integrates with inventory management systems (IMS) such as Finale. This integration automates data flow, reduces errors, and provides comprehensive inventory and financial synchronization, including accurate inventory valuation and tracking of landed cost.
Can Xero Connect to a WMS?
Yes, Xero can integrate with warehouse management systems (WMS). This connection ensures accurate, real-time inventory and financial data synchronization. Systems like Finale function both as an IMS and WMS, effectively bridging warehouse operations and financial accounting within Xero.
Xero Inventory Management
Xero’s built-in inventory management is basic but effective for small-scale needs:
- Tracks inventory quantities and values automatically
- Suitable for small businesses with straightforward inventory requirements
- For advanced inventory needs (multi-warehouse, barcoding, multichannel ecommerce), integrations with systems like Finale are required. A comprehensive procurement software is essential, especially when you have a growing team all working in the same books.
Xero Warehouse Management
Xero is primarily an accounting platform with basic inventory tracking functionality, and it does not offer full warehouse management capabilities out of the box. Advanced features like bin locations, internal warehouse zones, or multi-warehouse management have historically required dedicated add-on apps. Below are some features to think about whether Xero’s built-in (native) tools fit with your business.
- Label Generation (product labels)
- Built-in Xero does not include any product label or barcode generation tool. There is no native feature to design or print inventory labels or barcodes for products
- Label Generation (shelf or bin labels)
- Xero does not support tracking inventory at the shelf or bin level within a warehouse. The system has no field or module to record an item’s specific bin location. Each inventory item in Xero has a single overall quantity on hand, with no subdivision by storage bin or shelf.
- Zone Locations (Prep Areas, Packing Zones)
- Xero’s native inventory has no concept of warehouse “zones” or sub-locations. You cannot assign stock to specific areas such as a prep zone, packing station, cold storage, etc.
- Multi-Location Warehouse Tracking (Multiple Warehouses)
- Xero’s basic system doesn’t currently have a feature for tracking inventory in multiple locations.
- Multilocation tracking is possible in invenotry plus, which is an upgrade to the growing plan ($47 /mo.) and established plan ($80 /mo.).
- Stock movement and stock transfer
- Xero’s basic system doesn’t currently have a feature for stock movements, for example, moving items from one bin to another, or from a receiving area to a shelf
- Stock transferring is possible in inventory plus, which, like multi-location, is an upgrade cost.
Businesses that need label generation for their products and warehouse organization usually turn to a full WMS while running Xero accounting software in parallel. Zones, prep areas, multi-location, and stock movement are all upgrades to Xero’s basic system. Businesses that run on Xero have to use an add-on, plugin, or upgrade plans.
Xero: Is it right for my business?
In summary, Xero offers robust, user-friendly accounting solutions at affordable prices, with strong capabilities for small to medium-sized businesses. Its seamless integration with powerful inventory management systems like Finale allows businesses to scale efficiently, maintain accurate financial records, and optimize their inventory management processes, from COGS tracking to sophisticated inventory accounting.
