One of the most excruciating pain points for small businesses is dealing with the vast amount of receipts and supplier invoices. Jokes abound that some owners would prefer to go through a root canal procedure than focus on this area of their business.
We all know it’s vital that expenses are recorded in your accounting system completely, accurately and authorised appropriately given the delegations in your business. But hey, you just moved to Xero and you’re supposed to be living in the cloud, right?
You need to be able to see supporting documentation for all your transactions in one place – captured online, protected from physical deterioration, and easy to find.
So how do you do this in the most efficient and practical way relevant to the size of your business? There are a few ways to achieve data entry of expenses with supporting documentation that are easily viewable in Xero. The method you choose will depend on your expense volume.
1. Create Xero ledger transactions and attach documentation
If the volume of expenses in your business is relatively low (there’s no clear cut answer here – it’s down to personal preference and how you value your time – but let’s just say less than ten to fifteen items a month), you may find the easiest solution is to attach supporting documentation yourself. This can be done on-the-fly as you reconcile the bank account or create a new bill. You can also attach documents to transactions at a later date. For bills that have already been paid and reconciled there’s no need to ‘remove and redo’ the payment to attach documentation.
Needless to say, it’s a pre-requisite to have an image of the supporting document captured and stored in electronic form. Xero makes the document selection easy by allowing you to choose documents from your own file management system, or, their own Xero Files.
2. Xero Network Key
Each Xero organisation has a unique and private key – an alpha numeric identifier of thirty characters called a Xero Network Key. Sharing this key with suppliers who also use Xero enables them to send invoice data to you that arrives almost instantaneously in a draft bill in Xero. Whilst we think this is rather a neat feature, there are a couple things to keep in mind:
- An email will also arrive from your supplier which may or may not include a PDF attachment of the supplier’s invoice. You’ll need to be careful not to create another new bill. Not all suppliers will remind you in their email that they’ve already sent the invoice to you via the Xero Network Key!
- The supplier’s invoice does not get attached to your bill data in Xero. We’d argue that the time spent attaching a document to a Xero bill takes longer than entering the bill data itself. Whilst there have been recent rumblings on the Xero community forum requesting this capability, it’s not in Xero’s immediate plan to address this.
Alternatively, you can click on the Xero link in the email from the supplier which opens up your bill data online. Click on the save button and add to your Xero organisation – all bill data loads to a draft bill with the the supplier’s invoice attached as a pdf. Nice and quick.
3. Using an expense management add-on
It won’t be long before you’ll need to consider faster ways of achieving data entry in Xero, particularly for new bills – not all bills will come from suppliers using Xero! For many businesses, an expense management software is often one of the first add-on software they integrate to help them gain operational efficiency.
There are currently sixteen expense management software programs in Xero’s add-on marketplace. Not surprisingly they all vary in the functionality they offer with different pricing brackets. Quite frankly, it’s hard to look past Receipt Bank, Xero’s most popular add-on and a recipient of multiple Xero awards. Receipts and invoices can be submitted by post, email and mobile app. Submitting data electronically will give you the ability to reconcile on a more timely basis, which helps you reduce the risk of fraud and get a clearer picture of performance.
Receipt Bank will convert the information in receipts and supplier invoices into data using a combination of Optical Character Recognition (OCR) and human verification. During 2014, they made process improvements including line item extraction for booking against different accounts in the ledger. In 2015, we are expecting to see the release of functionality allowing businesses to view multiple accounts under the one umbrella, similar to the accountant partner version. This will assist businesses with multiple legal entities.
Receipt Bank exports an image of the actual document to Xero and attaches it to the transaction. Not all expense management software does this – some just give a hyperlink back to the image on their servers. Call us paranoid, but we feel a little more comfortable knowing documentation is stored online in two places. And while we are on the topic of feeling comfortable, Receipt Bank does a match on date, total amount, supplier and invoice number (if applicable) to merge any duplicate documents erroneously submitted. Nice.
Items are published (exported) to Xero when the user decides or they can be set to automatically export. The transaction type (ledger entry) in Xero depends on your business document type and your settings in Receipt Bank. Once an item is exported to Xero, all you have to do is match it to the bank statement line in the Xero bank reconciliation. Magic! Employee expense claims can be submitted to Receipt Bank, but it’s also possible to give employees limited access to Xero to do this. So just to recap on the benefit, it can take you ten seconds to submit items on the Receipt Bank app (snap a picture of bill and submit for processing), and, three seconds in Xero to match the item to the bank statement line. Data entry complete and supporting document is attached. Job done.
Managing your expenses documentation effectively will help you save both time and money.
If you are a growing business and don’t get this sorted, you’ll end up spending more money on a bookkeeper to enter data manually, which is easily avoided. So, if you’re starting the New Year with the goal to be more organised, then Xero and add-ons such as Receipt Bank may be the tool combination for you.