Xero review

It was once widely accepted that the choice of accounts software for a small business was simple: Sage or QuickBooks. But the hegemony of these leading desktop applications is now being challenged by a new generation of web-based software. We test three of the best offerings.

Hailing from New Zealand, Xero has made a seamless transition to these shores, with support for UK VAT, tax and now even UK payroll facilities. As is common with most online applications, its main Dashboard provides an overview of your financial position, showing bank balances, unreconciled amounts and cash flow.

Xero will quickly import downloaded bank statements, and its bank reconciliation feature does an impressive job of matching invoices you have created against entries in the bank statement. You can also create rules that automatically allocate entries to accounts based on conditions such as payee, description or amount.

Xero is also the only one of these three online applications to support automatic feeds that import data directly from your bank. Currently, only HSBC is a direct partner, but others can be linked via Yodlee, a third-party online banking solution provider. This automatically connects to your banking site and transfers statements securely to your Xero account daily. Coupled with semi-automatic reconciliation, it gives a near real-time view of your finances.

Xero’s invoicing capabilities are decent. Even if it lacks KashFlow’s stock control features, it does have an inventory list, where you can create items, assign a purchase and sale price to them, and add these to invoices through a dropdown menu. Oddly, you can’t prepare quotes and convert them to invoices, nor can you automatically issue payment reminders to customers.

Xero has just introduced an integrated payroll module with a batch payment function. You can set up multiple users with separate permissions levels, so access to payroll functions can be limited to Payroll Admin users while still allowing others to generate invoices.

Xero lacks the sort of estimating, project management and time-billing tools that come with FreeAgent; instead, it offers an open API that allows third-party plugins to fill these gaps.

There’s a lengthy list of reports, including support for all VAT accounting schemes; others track planned expenditure and income and compare them to actual results. As well as printing or emailing reports, you can store a report permanently within the application, making it easy to refer to past reports quickly.

Xero boasts similar security and backup arrangements to the others, and most data and accounts can be exported in CSV format. Xero comes in three flavours – the dearest supports multiple currencies, while the cheapest restricts the number of invoices you can post, but there isn’t much functional difference between them.

Given their relatively inexpensive running costs, we’d recommend any of these online services above a traditional budget or mid-range desktop accounting program. It won’t suit everyone, but the multi-user and payroll features of Xero make it a tempting choice for the larger business.