Xero (2014) review: Cloud-based accounting service for SMEs continues to improve

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  • Editors' rating
    9.0 Outstanding

Pros

  • Single subscription covers multiple users
  • Browser-based access plus mobile apps
  • Automated bank reconciliation
  • Online invoicing
  • Upload and attach files to accounting records

Cons

  • UK payroll still in development
  • No file/record locking with multi-user access

It's been a couple of years since we first reviewed the cloud-based accounting service Xero , during which time extra features have been added, bugs and omissions addressed and the interface tweaked here and there to make it even more user-friendly. Mobile support has also been enhanced. With Xero now, nominally, in its eighth revision, we thought it worth a follow-up review to see how it was progressing.

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The Xero dashboard. Image: Alan Stevens/ZDNet

Cloud benefits

We described Xero as 'nominally' in its eighth edition, because, as a hosted service, the software is continually updated so users tend to neither know nor care what version they are using. Xero users don't have to pay anything for updates, either: they're all included in the monthly subscription, with prices little changed since our last review -- starting at just £9 per month (ex. VAT).

It is worth noting, however, that this Starter subscription limits you to just five invoices and five bill payments a month, and just 20 items of bank reconciliation. That's might be enough if you're a sole trader, but less than one bank reconciliation a day is unlikely to be enough even for a micro-business. Most customers will, therefore, end up paying £20/month for the Standard subscription to get rid of those limits, or £25/month for a Premium subscription that also adds multi-currency support.

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UK pricing for Xero starts at £9 a month -- but there are restrictions with this Starter subscription. Image: Alan Stevens/ZDNet

Still, that's not a lot to pay compared to a conventional PC accounts package, especially given that a Xero subscription can be shared by as many users as you want. You can even include your accountant at no extra cost and, because Xero is accessed via a browser, regardless of whatever accounting software they might use with other clients. Bear in mind, though, that there's no record-locking in Xero, so if two users try to change the same data it's down to whoever clicks the save button last as to whose changes will actually be implemented.

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New users can sign up for a Xero account in just a few minutes and trial the product free for 30 days. The service was originally developed in New Zealand and is now available in US, Australian and UK formats customised to handle the currency, accounting and taxation requirements in each country. Some features may not be available in every region, however. UK customers, for example, do not get any kind of integrated payroll beyond the ability to process already calculated salary payments. Third-party add-ins are available to fill this gap and an RTI-compliant UK payroll is in development. Unfortunately, according to the Xero blog, this could be up to a year away.

On the plus side, most of the issues mentioned in our original review have been addressed, including support for online filing of VAT returns with HMRC, for example. We also reported on the release of an Android mobile client, Xero Touch , earlier this year to go with the existing Apple iOS version, which has recently been updated to support fingerprint authentication.

Xero was already an easy-to-use accounting tool, but a great deal of work has gone into refining and extending its functionality since our original review. We've picked out what we consider to be the top three features that are likely to grab the attention of potential customers, starting with automatic bank reconciliation.

Working with the bank

A key feature of Xero is the ability to continually reconcile real banking transactions against invoices and bills held in the company accounts. This facility lets you stay on top of your cashflow and avoid unnecessary overdraft charges, for example.

Two tools are available to help here, starting with the ability to import electronic bank and credit card statements rather than have to manually key in the data from paper copies. You can also get your bank to feed transaction data directly into Xero, although this will attract a charge of around £3-3.50 per month -- although, when we checked, this was only available as an option with HSBC, NatWest, RBS and the Silicon Valley Bank, and then only for current accounts.

The other tool is the ability to get Xero to automate the process of matching banking transactions with those in the Xero ledger. To this end the statement being reconciled is displayed on-screen alongside a list of possible transactions found in Xero with, 'auto-suggestions' at the top, selected on the basis of how you reconciled previous transactions as well as by matching common reference numbers, payment amounts and so on.

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Bank account reconciliation in Xero. Image: Alan Stevens/ZDNet

You can create custom bank rules to further automate the reconciliation procedure as well as manually raise invoices and bills to match the items on the bank statement. You can also add discussion comments to, for example, get your accountant to help decide how to code entries you're not sure about. All this be done from anywhere using any device with a browser, or via the Xero Touch mobile app.

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Custom rules can streamline the reconciliation process. Image: Alan Stevens/ZDNet

Online invoicing

Paper invoices and statements sent out by post are pretty much a thing of the past these days as most accounting packages, including Xero, can generate PDF documents and dispatch them by email. Xero also gives you the ability to send customers a link to view invoices, and even pay them online.

Very little preparation work is needed to take advantage of this option. Just raise an invoice as normal then, once it's approved and ready to be sent, click the large Send button. Xero will then generate an email containing an embedded link using a customisable template of your choosing.

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Emailing a PDF invoice from within Xero. Image: Alan Stevens/ZDNet

There's no need to create an account for the recipient (unless you want them to be able to browse all their outstanding invoices); they just click the link to see the invoice, with options to print it out for their records or pay directly using either PayPal or another payment gateway -- several are available as optional third-party add-ons, although charges will apply.

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Hopefully, your invoice recipients will hit the big green 'Pay now' button. Image: Alan Stevens/ZDNet

It's all very easy and you can check to see whether the invoice has been viewed online or not, which rules out those 'lost in the post' excuses for non-payment.

Files with everything

Another really useful option is the ability to upload files to the Xero cloud and associate them with particular invoices, purchase orders and other parts of the accounts system. Almost any type of file can be uploaded or, if you wish, emailed to your Xero account to, for example, attach a copy of a supplier invoice to a purchase order or a bill payment. You can also use it to upload a photo of a receipt in support of an expenses claim -- a tool to do just that is built into the Xero Touch mobile app, and there's another inside Xero itself for capturing images using desktop and notebook webcams.

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You can upload files to the Xero cloud and associate them with elements of the accounting system. Image: Alan Stevens/ZDNet

Files can be uploaded anywhere you see the Xero Files icon and associated with invoices, transactions, expense payments and other bits of Xero as required. Uploaded files can also be organised into folders and shared with other Xero users -- it's a bit like using Dropbox, but all done inside your accounting system.

Progress report

We really liked Xero when we first reviewed it, describing the service as "one of the easiest online accounting systems we've tried". That still stands -- if anything, it's become even more usable. You can also achieve a good deal more, thanks primarily to a focus on the kind of day-to-day accounting tasks that all small businesses need to master. The user interface hasn't changed much, but that's no bad thing, and it still lacks a UK payroll option, but that's on its way. Minor niggles apart, Xero is as likeable as ever and remains top of the heap when it comes to cloud-based accounting.


Update (March 2015)

Below is a list of significant features Xero has released since this review was published:

  • Dashboardhas an updated design, and can now be customised.
  • Quotes allow small business customers to create and send quotes for new work to customers and prospects, and can be easily turned into invoices.
  • Payroll is now fully integrated with Xero in the UK (and New Zealand). RTI submissions are supported, and employees can access their pay history, payslips, submit and view time off requests and so on.
  • Inventory capabilities are being upgraded in March to track the quantity and value of the items that companies buy and sell. Xero's solution is designed for small businesses with non-complex inventory control needs.

Topics: SMBs, Cloud, Enterprise Software, Reviews

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