If you sell online and your store feeds sales directly into Xero, or you receive payments on invoices via payment processing services, you may receive an aggregate remittance to your bank account that makes it difficult to reconcile with individual sales invoices.
Creating an intermediary clearing/suspense account is an easy way to handle this, and streamlines the work involved.
We need to setup some extra accounts in our chart of accounts. These clearing accounts allow us to easily apply payments and reconcile monies received without having to directly match up daily settlements to individual invoices.
An account should be created for each payment type received that does something a little different e.g.
AMEX or Diners Club should be separate accounts as these are generally remitted net of fees
We have a bunch of invoices in Xero. Regardless of whether they were created in Xero and payments were received through an external gateway, or the invoices were inserted from an external application like a shopping cart, we now have a bunch of invoices created on the same date, with payments applied:
Note that these invoices have been paid. Via the API, a payment has been created on each invoice. In this example, the payment has been linked to our EFTPOS account we created previously.
If we take a look at our balance sheet report right now, we will see under current assets, that our Eftpos clearing account has a balance of $3,500 – this matches the total of the sales invoices created and marked as paid today:
If we take a look at our bank account in Xero, we can see we have received some funds from our payment processor. These are lump sums that do not correspond directly to a specific invoice.
We now have the following:
The next time the user goes to reconcile, the Xero bank reconciliation screen should auto suggest the receive money transaction – the user just needs to click OK.
In the event a charge is refunded, you can handle this by the following:
Some payment services such as American Express will remit funds net of fees. This is a little trickier as it means your remitted funds will be less than your sales, leaving the clearing account with an outstanding balance.
Hopefully you will have access to a report from this payment service that indicates the fees charged on a weekly/monthly basis
Using this information, you can create a manual journal that moves the fee amount out of the clearing account and into an expense account such as a bank fees account. Consult your accountant or tax professional for advice on how to do this.