What is Xero? A Complete guide to Xero Accounting software

If you’re looking for better ways to manage your business finances, you’ve probably seen Xero as one of the popular choices. It’s an accounting software tool that lets Australian businesses sort invoicing, payroll, expense tracking, bank reconciliation, and more, all from a single platform.

In this blog, let us explore more on the range of tools and features offered by Xero along with overview on cost and benefits of using it for day-to-day business. We'll also explore the how Xero Accounting can be integrated with business account solutions like Wise Business.

Sign up for the Wise Business account! 🚀

What is Xero?

Xero is paperless, online accounting software built to make managing everyday bookkeeping tasks, like sending invoices and paying bills, handling payroll, and making sure internal records match bank transactions, much simpler and faster for business owners.

Designed with startups in mind, Xero basically has everything a sole trader or small team needs to make smart financial decisions without getting buried in admin or having to always defer to a specialist accountant.

Founded in New Zealand, Xero has grown into a global platform with 4.6 million paid subscribers¹. For businesses that are fed up with confusing spreadsheets and older, legacy software, Xero provides a much easier and accessible way (via the cloud) to manage money and all the legal obligations that go with it.

How does Xero work and what does Xero do?

Xero is basically the central financial hub for your business. It connects directly to your business bank accounts, so all your transactions (income, expenses, etc.) flow into your system automatically.

Xero software also does most of the legwork for other tasks, automating workflows related to bookkeeping and accounting so you don’t have to manually sift through records to publish accurate reports.

There are lots of other useful features, too. With Xero, you can:

• Reconcile transactions quickly by matching them with invoices or expenses.
• Send online invoices that customers can pay instantly.
• Track cash flow through dashboards and reports that update in real time.
• Automate payroll, inventory, and tax calculations.
• Collaborate with accountants and bookkeepers via secure cloud access.

Because Xero is cloud-based and operates entirely online, you don’t need to fumble around with complex local software installs or worry about manual updates or backups. It’s easy to log in with a web browser or via the official mobile app to manage everything.

However, it’s not free. Xero uses a subscription model where you pay monthly for a specific plan, which we will cover later in more detail. You’ll also need to set up a dedicated business bank account to connect with Xero².

Features of Xero accounting software

Xero packs a huge range of tools into one platform — all designed to cut down on busywork and give owners more time to focus on growth. You can manage most of your financial workflow within Xero, and if something isn’t available natively, there’s usually a third-party app you can integrate from the app store to get things sorted.

Here are the main features of Xero accounting software³:

• Accept payments - Send invoices with ‘pay’ buttons to take payments across multiple methods, including credit cards and direct debit.
• Pay bills - See what’s due, and when, to avoid late payment fees. Schedule and approve bills, attach receipts or suppliers' invoices, and get a bird’s eye view of upcoming costs to improve your financial planning.
• Manage online invoices - Create professional, branded invoices. Xero lets you personalise templates and set automatic reminders for overdue payments, as well as track the status of every invoice.
• Reconcile transactions - Xero connects to your bank account and pulls in transactions automatically, ready for you to match them with your records. No manual entries required.
• Claim expenses - Submit and approve expenses on the go. You and your employees can upload receipts and categorise costs in the app. Everything then syncs to your account, making reimbursement and reporting easier (and more accurate).
• Manage payroll - Handle payroll and superannuation directly in Xero. You can pay staff, send payslips, and use Single Touch Payroll (STP) to report your employees’ earnings, super contributions (and more) with just a few clicks⁴. Tax, leave, and deductions are calculated automatically, keeping compliance simple.
• Integrate apps - Xero claims there’s a “tool for almost every job” in its marketplace. Integrate hundreds of apps, including Shopify, Stripe, and Wise Business, to streamline operations and automate payments.
• Create purchase orders - Stay on top of stock and supplier relationships by creating and sending purchase orders. Track order statuses and convert them into bills when goods are received to save time and manual admin.
• Track finances - Use the real-time dashboard to get a clear snapshot of your financial health. There are profit and loss statements and cash flow forecasts, plus custom reports which can be easily shared with accountants.
• Manage inventory - Use the small business inventory management system to keep track of up to 4,000 items, and quickly add them to invoices⁵.
• Calculate GST - Xero calculates and automatically logs GST for each transaction. And you can connect to the Australian Tax Office (ATO) to lodge your BAS statements with ease.
• Lean on AI assistant - Xero recently unveiled an AI assistant, JAX, that promises to “supercharge” admin by automating repetitive tasks and offering “strategic” advice and support⁶. It’s currently in beta phase.

Xero pricing and cost

You’ll have to pay a monthly subscription fee to use Xero. It currently offers four plans in Australia: Ignite, Grow, Comprehensive, and Ultimate 10.

All the Xero plans allow users to complete essential tasks like reconcile bank transactions, track GST and submit BAS statements, and get cash flow and business snapshots.’ However, certain features are gated or tiered, with more ‘premium’ plans getting higher allowances and advanced tools, like project tracking. This gives you room to scale up as your business grows.

Here’s a Xero overview of how the four tiers compare in terms of pricing⁷:

Xero usually offers a 30-day trial, if you want to test the features before committing to a monthly plan.

Xero accounting software benefits

Xero generally makes it much easier to run a small business. It automates many of the dull (but legally essential) bits, keeps your books tidy, and gives you a clear and accurate picture of your finances.

Here are some of the biggest benefits with Xero:

1. Less admin, more time

Xero’s bank feed connections and automated transaction categorisations do pretty much all the heavy lifting for bookkeeping, so you don’t have to slog through the task of manual entries and crunching numbers. While use cases vary, this is likely to save you multiple hours of work per month.

2. Clear view of finances

The Xero dashboard shows you everything you need to know — your latest bank balance, invoices, and bills, all in real time. You don’t have to wait for end-of-month reports to know how you’re doing. You can see it instantly and make better decisions on where to spend and save.

3. Get paid faster (and improve cash flow)

Xero’s invoicing tools cut the amount of time chasing payments by 50%⁸. You can use ‘pay now’ buttons, send friendly reminders to settle invoices quicker, and get a clear view of outstanding bills. Improving cash flow can make all the difference for small businesses.

4. Simpler tax compliance

Nine in ten Xero customers say Xero helps their business to stay compliant². Xero takes the hassle and stress out of tax season. It calculates GST, prepares BAS statements, and files data directly to the ATO. Again, any one of these tasks would usually take hours. Using Xero means less time pouring over figures and, perhaps most importantly, fewer mistakes.

5. Work anywhere

You aren’t tethered to a single licence on a desktop computer. With Xero, everything is stored in the cloud, so you can send invoices from home or approve expenses during meetings with clients. All you need is an internet connection. This flexibility supports faster work for business owners and small teams.

6. Integration with business accounts

Xero works best when it’s part of a broader financial toolkit. You can connect it to hundreds of business apps to see all your money in one place. When you link a Wise Business account, for example, all your international transactions ping straight into Xero, making reconciliation and cross-border payments much easier.

Automate your international bookkeeping with Wise Business & Xero

While Xero streamlines your domestic accounting, managing finances across borders can introduce new layers of administrative complexity.

Wise Business helps solve this challenge by integrating directly with your Xero dashboard to sync daily transactions in over 40+ currencies. By feeding international payments and expenses straight into your accounting software, you can reconcile foreign currency accounts without manual data entry to help ensure your global bookkeeping remains accurate and up to date.

A Wise Business account allows users to can send, receive, and hold in multiple currencies. Experience hassle-free global transactions by transacting like a local business. Here's what you get with a Wise Business account:

• Free to register — Hold and convert between 40+ currencies. Send to 140+ countries
• Debit cards for you and your team, which you can use in 150+ countries
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 recipients at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions like Xero, QuickBooks, and more
• Get account details to receive in 8+ currencies for a one-time fee of 65 AUD

Sign up for the Wise Business account! 🚀

This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.

FAQs on Xero

1. Is Xero an ERP system?
No, Xero is not technically a full ERP (Enterprise Resource Planning) system, which lets businesses manage a wider range of core processes, like supply chains and customer relationships. Xero is primarily an accounting platform focused on cutting down on the admin related to business finances and payroll. However, it can integrate with ERP platforms.

2. Is Xero cloud-based?
Yes, Xero is 100% cloud-based. Everything works online, with data secured in the cloud rather than a local computer. This makes it easier to log in to Xero’s web-based portal across multiple devices and to collaborate with staff remotely. It also means updates and backups happen automatically.

Sources:

1. Xero Australia - Home page
2. Xero - Accounting software
3. Xero - All features
4. Xero - Single Touch Payroll
5. Xero - Manage inventory
6. Xero - AI in accounting
7. Xero - Pricing plans
8. Xero - Accept payments