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An Easy Way To Manage Expenses & Spending With Xero

By November 2021No Comments
An Easy Way To Manage Expenses and Spending With Xero - Beyond Accounting

Managing expenses has always been difficult. Even though we’ve been using Xero for nearly a decade, this part of the bookkeeping has never run as smoothly as I felt it should. Until now.

What is an “expense” in a business?

The very first obstacle to making expenses tracking easier is to clearly understand what expenses are. A drawerful of receipts may contain the following types of expenditure:

  • A receipt for something purchased by the business owner with her own money
  • A receipt for something purchased using the company credit or debit card
  • A bill/invoice for something that was purchased by the business

Only the first example above is technically an expense in that it needs to be reimbursed to an individual. The other two are simply paperwork for business purchases (where the payment was either immediate or on credit).

Managing expenses in Xero

In Xero, the functionality for managing expenses has only really catered for that first type of transaction – a reimbursable purchase. So, if your staff are spending their own personal money on business costs and need to be reimbursed for them, Xero is set up for that.

However, that scenario is becoming quite rare now. Most staff don’t use their own money to buy things for the business. So that whole area of Xero was largely unused – certainly by most of the companies we work with, anyway. Which was a shame, because the Xero Expenses app is very good and people can simply snap a photo of their receipt and then throw it away, knowing that the information has been safely transferred into Xero. The paperless aspect was very attractive, but use of the app was limited.

Using Xero Expenses for business spending

However, things have changed recently because the Xero Expenses app can now also be used when company money is being spent. For each user that is given access (any employee or director who would typically spend money for the business) you can tailor their account to select which bank accounts they spend money from.

Xero + Revolut

The way we’re making this work for general business spending is using Xero Expenses in conjunction with our Revolut business account. Revolut makes it easy to set up new accounts and new cards, so you can create a dedicated expenses account with a debit card that’s just for that account. You have that account coming into Xero as a live bank feed – for this example, let’s call it “Rory’s Expenses Account” – so it’s now a breeze to record spending in the Xero Expenses app and have it show in Xero so that it can be reconciled.

If it takes more than a few seconds to account for the price of a cup of coffee, that’s simply not efficient. But, as you can see, this system is really tidy and doesn’t require any additional management. It’s delivering what automation should…

Now that this works as an end-to-end automation, I can spend money for the business and managing the ‘paperwork’ is really easy. Of course, the money does need to be available to spend – remember, I set up a separate Revolut bank account for this (Rory’s Expenses Account) so I will need to transfer money from the main account(s) into this one. Whether you transfer little and often or transfer a larger lump sum will depend entirely on what works best for your business.

Once you have everything set up, it should all work seamlessly. Let’s say I stop for coffee on my way to a meeting. I’ll pay using the card connected to my expenses account, the coffee shop will give me a till receipt, I’ll open up Xero Expenses and snap a photo of the receipt, then I’ll throw the receipt in the bin and be on my way. There are no additional settings/information needed when I take the photo with the app because it’s already set up to know who I am and which bank account I’m using.

Managing business spending within Xero

When the bookkeeper is next logged into Xero, they can see my spending in the Expenses module within Xero. And they can easily reconcile transactions in the bank feed against the bills to be paid that were automatically created when I scanned my receipts. The bookkeeping workload is obviously much reduced, too. The bookkeeper no longer has to scan a box of receipts or match them to the correct member of staff or work out which bank account the money came out of.

If it takes more than a few seconds to account for the price of a cup of coffee, that’s simply not efficient. But, as you can see, this system is really tidy and doesn’t require any additional management. It’s delivering what automation should, and it is of course perfectly scalable.

Scaling the Xero Expenses system

Imagine you have lots of employees who purchase things for the company. Each person is set up with Xero Expenses and has the app on their phone (each user costs $4/month). When they take a photo at the coffee shop, it automatically goes against their Expenses account in Xero and against the bank account they are spending money from.

At the Revolut end of the system, you have created an account for each person, which you have put funds into (again, the level of funds will depend on what kind of spending is expected, luckily it is very easy to move money between Revolut accounts). You will also have created a debit card for each person that is linked to their expenses account only.

When you go into your Xero account, you’ll be able to see the bank feeds for each account and so have oversight of the spending. If someone is abusing their privileges, you’ll see straight away. Also, the bookkeeper will soon notice if someone is spending money but not uploading receipts for it, so you’ll be able to address that behaviour before it becomes habit-forming.

The ease of account management with Revolut means that you could, for example, freeze someone’s card if they are failing to produce receipts or put a limit on spending until a new employee has proven they can be trusted with their purchases. In my opinion, this level of control more than makes up for the fact that you do need to pre-pay into these accounts and keep an eye open to ensure they’re adequately topped up. At some point, Revolut is bound to have some mechanism allowing you to fund accounts automatically from your main account, but, for now, I think this works well.

This combination of Revolut for Business and Xero Expenses has transformed how our clients manage their expenses. There is some setup of the process to be done, as you can see, but once everything is working you have saved yourself and your bookkeeper a huge headache. You won’t need any of the third-party expenses apps nor the pain of getting them integrated.

If you don’t want to use Revolut, you could replicate this system using something like Pleo, which would work in very much the same way.

We are experts in automation and have helped many clients to optimise their internal processes and use of technology. If your digital systems aren’t living up to expectations, it may be time for some practical, actionable advice from the experts! Talk to us about switching to Beyond.