Last month Xero released its long awaited inventory module, a significant milestone. Xero had acknowledged inventory as the missing piece in its core accounting platform and had promised delivery for quite some time.
The lack of inventory was a major differentiator with other online accounting software products such as QuickBooks Online (QBO) and Saasu.
Small businesses with straightforward inventory requirements using Xero either had to choose an alternative product or pay for a costly and complex add-on such as Dear Inventory or Unleashed Software.
Does the new inventory in Xero address the basic inventory needs of small businesses? And does it compare favourably with QBO and Saasu?
There are no bells and whistles in the Xero solution. A business can only track inventory held for resale and recognise cost of goods sold when the inventory is sold rather than when it is purchased.
Additional features such as re-order levels, minimum/maximum quantities may be delivered in future updates. This is similar to QBO but interestingly Saasu can record a lot more information on items including re-order quantity, minimum order quantity and the supplier’s part number. Saasu also supports ‘combo’ items or kitting which is missing in both Xero and QBO.
Inventory Comparison – What Xero Lacks
There are a couple of inventory item features that are available in QBO but not in Xero. Firstly the ability to group items together under a header item; this can be helpful where there is a long item list. The same result can also be achieved by careful item numbering.
The second feature available in QBO is the ability to indicate if the purchase and/or selling price is inclusive or exclusive of GST. Many retail businesses only think of prices as inclusive of GST. (I know I can set this at the invoice level but it is still helpful to set it on the item.)
Xero supports the transition process to stocked items for businesses that already had their items set up. The item list can be exported to a spreadsheet where a user can add additional fields required for inventory tracking and import the spreadsheet to update the existing items.
The list of tracked items can be exported and the opening balance quantities and values recorded and then imported ready for processing.
(Note: Care should be taken with importing the opening balances. Xero uses average cost to calculate cost of goods sold so incorrect opening balance values will cause problems later.)
There are varying views on whether negative inventory is a good idea. I am just noting that Xero does not allow negative inventory (nor does Saasu) but QBO does. If there is insufficient quantity on hand when a sales invoice is entered in Xero, it can only be saved as a draft invoice. I don’t get an option to raise a purchase order as we have in MYOB and Reckon Accounts.
Xero also doesn’t say whether a quantity is outstanding on a purchase order. It clearly shows the current quantity on hand when raising a sales invoice as a pop-up which is helpful. QBO allows for negative stock and doesn’t advise me if I am about to go into negative with that invoice.
Neither QBO nor Xero have functionality for a full stock take. I can adjust both the quantity and the value but this is on a slow item by item basis which is not suitable for a business with an extensive list of inventory items. (The import of quantities and values is only for opening balances, not ongoing stock take figures.)
Another difference between QBO and Xero that most small businesses won’t notice is the costing methodology. Xero uses average costing and QBO uses “first in, first out”. I prefer average mainly because it is easier to follow the cost of sales entries, but either is acceptable.
The biggest disappointment in the Xero solution is an inventory summary report to reconcile inventory to the balance sheet. There is an item details report in the new reports section (which means it can’t be starred for quick access). Not only is this a detail report listing all transactions, it includes non-inventoried items (untracked) so is not useable for reconciliation purposes.
There are no additional selection or sort criteria on the report. The user can only amend the columns that are displayed. QBO does provide an inventory valuation report as well as good summary and detail sales and purchases reports which is certainly an advantage. (Note – the existing inventory items summary report in Xero only works for non-tracked items.)
I do like Xero’s inquiry screen. When I drill down on each item it shows quantities on hand, on order, average cost and also lists recent transactions. It is helpful having all that information in one screen.
The Verdict
Apart from the lack of reports, the Xero solution does compare well with QBO and should work for a business that just needs a simple inventory within its cloud accounting software. We can expect future enhancements to expand the existing functions, although as yet there are no dates for release.
Any business that requires more than basic tracking will need to continue to look at the add on solutions such as Unleashed or Dear but it is a promising start.
A version of this story first appeared on Cloud Accounting Buzz.
