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How does reconcilliation work when I have created a payment against an invoice

Started by Gareth Evans -   in Getting Started

If I am creating an invoice and a matching payment (e.g. a credit card purchase)
Then the payment gateway will hold the funds for a few days until they are delivered to the bank account.
When the payment arrives from the gateway provider, it is likely to arrive in a lump sum.
Since I already know the payment succeeded (this comes back in the response from the gateway)
should I create a payment in xero?
If I create this payment in xero (so the invoice is marked as paid), what happens when the money really does arrive in the bank account?
It will be tough to reconcile a lump sum arriving from the gateway against standalone invoices - hence wanting to create the payments in advance.
@Gareth - here's a few options below

1. If you are creating an invoice in Xero for each individual sale then adding the payment as soon as know the invoice has been paid is useful. Adding a reference with say a date will make matching a group of payments easier. You'll still be able to reconcile the matching bank statement line when it arrives in your bank account using the find and match function in the bank reconciliation screen.

This sounds good in theory but what happens when you have a lot of invoices each day and you don't want the chore of matching a whole lot of invoice payments to a single statement line?

2. If you are generating a lot of invoices each day then consider entering just a summary invoice in Xero for the total sales for the day/period. That way you'll only have to match a single invoice with the bank statement line. The summary invoice could still contain lines so you could report on sales by say, tracking category or inventory item.

3. Another alternative approach is to add a clearing account (Asset account) for your credit card payments and when you add payments to the individual invoices use this account rather than your bank account. This way, when your daily/periodic statement line comes in for a whole lot of invoices you don't need to match the money to all the invoices, you can code the statement line directly to the clearing account. You could even setup a bank rec rule to make this a single click each day. When you look at your balance sheet you can then see how much is in your clearing account that you're waiting to be paid on.

If there are fees being deducted from each receipt of money too then the clearing account approach (option 3) could be a cleaner option for you, though you could also use option 1 and apply a bank fee line to the 'find and match' reconciliation.

Tony Rule (Xero Staff)  

Ok cool - we are having the same problem.

So in regards to (3) - all our transactions from customers will be added as a 'BankTransaction' (type: received) into the clearing account and then we would do a daily reconcile against the statement as a transfer. Does this sound about right?

So this would also mean we would need to create an invoice for that individual customer transaction. This is fine and good.

However - how do we handle refunds? Currently our lump payment from the payment processor will be the total for the previous days sales minus any refunds. We will need to reflect this in our clearing account.

So this can be a BankTransaction (type: spend). However - is it possible to create an invoice against this with a negative line item and total via the API? Or would we just create an invoice of type ACCPAY instead?

I'm new to xero so I apologise if my terms are not accurate. Just look for some reassurance before throwing too much time at this project.


Gareth Foster  

@ Gareth Foster - If your clearing account is setup as a regular asset account you can't "transfer" money to this account but you can "code" the statement line to go to this account when you are reconciling. I'm guessing that's what you meant.

A refund will need to decrease your total sales. On your daily receive money transaction you could enter two line items - first the amount for your new sales and then a negative line for your refunds - both coded to your sales revenue account.

The matching statement line amount being coded to the clearing account is the money you've had deposited in your bank account (i.e. new sales less refunds).

If you then look at the balance of your clearing account it should reflect the refunds and if you look at your profit and loss you'll see your sales have also been adjusted for the refunds you've given. I suggest you walk your financial adviser through your solution to check you're accounting treatment is sound.

Tony Rule (Xero Staff)  

I have a similar issue with cash deposits. Our POS system is being linked to Xero so that at end of day we post to Xero using the asset account method (API Guide for POS). I have two issues with this:
1. Banking of cash is not done every day, so in the POS we accumulate cash and then deposit all at once. The invoice posted to Xero will not balance (i.e. not be Xero) as daily sales may not see the cash component, and then on the day of banking a lump sum will arrive. The cash deposit will reconcile the asset account nicely, but the daily invoices will not be $0 value.
2. Fees taken prior to depositing to our bank account (e.g. Amex). How do we treat these? We deduct the fee deducted in the POS, but on posting to Xero the sales revenue will not balance with the posted amounts to the asset accounts. In addition, we want the bank fees posted and coded correctly.

Thanks in advance!

Rob King  

@Rob King - the handy thing when using clearing accounts there is no requirement for the cash to be banked all at once. The daily summary invoice is equivalent to a journal showing that money has been collected but not yet deposited at the bank.

I'm keen to extend our guide to explain how to handle fees so it'd be great if you could drop me a line api@xero.com so I can arrange a time to discuss this some more with you. I can take you through the clearing accounts in more details then as well.

Tony Rule (Xero Staff)  

Hello Tony,

we are currently having a xero add-on written for CS cart and I would be keen to get some more feedback how to implement this. At present if we use the api to create a payment we have the payment double once via the api and once via the payment stream for instance PayPal.

As mentioned by previous posters we have several different payment methods like PayPal, credit card via a third-party payment gateway and bank transfers.

The credit card payments are deposited in a lump sum at the next business day and I would be very keen to hear how we would best implement these.



Stefan Fischer  

@Stefan - not sure if you've read the following guide - http://developer.xero.com/documentation/api-guides/handling-payment-processor-receipts-in-xero/ . Using a clearing account when making payments via the API to invoices enables you to code the bank statement lines to the clearing account to balance things out. You could have a clearing account for each payment method so its easy to see the value of funds for each type that hasn't yet reached your bank account.

Tony Rule (Xero Staff)  

Hi Xero, I'm really struggling with something related. I use lightspeed as epos. I now get figures through lightspeed accounting in to a 'cash clearing' line, but what i cant seem to do is get those figures into the sales line.

I need to be able to set all of the transactions as sales and reconcile. this has now been going on for over a year and i need everything set up properly so i can get everything up to date. I'm getting really frustrated with there not being a support line for help.

If anyone is reading this please help

Ben Stevens