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Sales Invoices In Xero

Everything you need to know about billing clients in Xero
How to Access Xero Sales: Login to Xero > Business > Invoices
Most businesses raise their first invoices in Excel or Word, including Numble! But when you're ready for a professional solution, Xero is ready for you.
Let's cut through the fluff to teach you about:

Creating Invoices

  1. 1.
    Login to Xero and navigate to Business > Invoices.
  2. 2.
    Start by clicking 'New Invoice'.
What to include on an invoice if you are VAT registered
VAT registered businesses must meet certain requirements to issue valid invoices. Fortunately, Xero makes this easy.
Here's what to include on your invoice:
  • To: Your Client Name (it's a good idea to enter their address too)
  • Reference: Optional field that will be visible towards the top of your invoice
  • Invoice Number: Unique sequential identifier (eg: INV-001, INV-002 etc...)
  • Issue Date: Today (or any other date)
  • Due Date: Today (or any other date)
  • Item: Leave blank
  • Description: Your product or service
  • Quantity and Price: eg 1 x £1,000
  • Account: Sales
  • Tax Rate: Depends on the VAT status of your product or service, see the table at the bottom of this page
Xero forces you to include all of these on your invoices, so simply add all of the relevant details and click
You can edit the numbering system in Xero > Company Name (top left) > Settings > Invoice Settings > Default Settings.
You must add your VAT number in Xero > Company Name (top left) > Accounting > Advanced > Financial Settings.
What to include on an invoice if you are not registered for VAT
Businesses that are not registered for VAT are not legally required to raise an invoice, but of course you should.
Here's what to include on your Xero invoice:
  • To: Your Client Name (it's a good idea to enter their address too)
  • Reference: Optional field that will be visible towards the top of your invoice
  • Invoice Number: Unique sequential identifier (eg: INV-001, INV-002 etc...)
  • Issue Date: Today (or any other date)
  • Due Date: Today (or any other date)
  • Item: Leave blank
  • Description: Your product or service
  • Quantity and Price: eg 1 x £1,000
  • Account: Sales
  • Tax Rate: No VAT
You can edit the numbering system later in Xero > Company Name (top left) > Settings > Invoice Settings > Default Settings.

VAT tax rates in Xero

If your sale is:
Choose this tax rate in Xero:
Examples:
Subject to 20% VAT
20% VAT on Expenses
  • Hot coffee
  • Consulting fees
Zero-rated
Zero Rated Expenses
  • Coffee beans
  • Takeaway iced tea
Exempt from VAT or outside the scope of VAT
Exempt Income
  • Services provided to overseas businesses
  • Financial intermediary services

Approving invoices​​

Xero enables multiple stage invoices, such as drafts, awaiting approval, and approved invoices. We won't go into detail about this here.
Choose one of the approval options below:
  • Approve to create the invoice in your accounting records.
  • Approve and email to add your client's details and email the invoice directly from Xero.
  • Approve and print PDF to email invoices to your clients yourself.
Approving an invoice records the revenue in your bookkeeping records.

Amending and deleting invoices

Duplicate an existing invoice

Navigate to an existing invoice in Xero, click Options and 'Copy to draft invoice'.
Duplicating is an easy way to create the same invoices over and over again

Edit an existing invoice

If you need to amend an invoice you can navigate to an existing invoice in Xero, click Options and Edit.

Create a credit note

To create a credit note, navigate to an existing invoice in Xero, click Options and 'Create and apply credit'.
A credit note is the opposite of an invoice and you may issue a credit note to amend or reverse a previous invoice.
You only need to raise a credit note if your client insists needs the document. It's easier to edit or delete the original invoice instead.
You may also need to create a credit note if your original invoice is in a 'locked period', which means your accounting data on that date is set in stone (usually by an accountant) and can no longer be amended. This happens when we prepare your annual accounts.

Delete an invoice

You can delete an invoice by navigating to the invoice in Xero, click Options and Void.
This will (almost) entirely remove the invoice from your accounts Xero. It is useful for reversing an invoice that was created in error or an invoice that you no longer expect to be settled.
If you are VAT registered the deletion will be reflected on the next available VAT return.
If the invoice is within a locked period, then you may need to create a credit note instead.

Connect a payment service to Xero

Make it easy for clients to settle your invoices. You can do this by connecting a payment service such as PayPal, Stripe or GoCardless
You can also enable direct debit payments using GoCardless. This is very useful for recurring payments and subscriptions and works very well for us!
To get started navigate to Xero > Company Name (top left) > Settings > Payment services. You'll find a number of default options.
There are a large number of alternatives so we cannot go into detail about each one here. To find instructions for your payment service:

Designing your invoice

You can customise your invoices in Xero > Organisation Name (top left) > Settings > Invoice Settings.
You may define multiple themes if you have multiple brands or send invoices in more than one currency. But most businesses get by with one theme.
Add your logo to the 'Standard' theme by clicking Options > Change Logo
We also recommend the following changes in Options > Edit:
  • Address Padding = 0.00
  • Choose a font that most closely resembles your brand and adjust the font size
  • Uncheck 'Show payment advice cut-away'
  • Enter your contact details
  • Enter your bank details under 'Terms and Payment Advice'

Receiving money

There are a few ways to mark sales invoices as paid. Let's walk through our two recommended approaches.
Reconcile cash receipts against sales invoices (Best Practice)
This is our recommended approach but it requires knowledge about reconciling bank statements in Xero.
We almost always connect our client's bank accounts with Xero. This feeds your bank statement directly into Xero, either instantaneously or with a one-day time lag.
By reconciling your bank statement cash receipts, you won't need to manually record each cash receipt against against each invoice.
  1. 1.
    Navigate to the bank account in Xero > Dashboard > Reconcile x items.
  2. 2.
    Find the cash receipt and you might notice it has automatically been matched against the invoice!
  3. 3.
    Or select 'Find & Match' and search for the invoice or invoices.
  4. 4.
    Once you've checked the correct invoices, click 'OK' or 'Reconcile' to match the cash receipt against the invoice. This will mark the invoice as paid.
Adjustments can be made if the amount received varies slightly from the invoice (for example, you've been charged bank fees). However, you should only create adjustments if you know what you are doing.
Manually record cash receipts against sales invoices
Find the invoice in Xero and select 'Add Payment'.
Enter the date of payment, bank account the cash was received into, and the amount paid. A reference is optional and probably not necessary.
This will mark the invoice as paid in Xero. At a later date, when we reconcile the bank account, the cash receipt must match up with money you have actually received (i.e. you shouldn't mark as invoice as paid when you haven't received the money).
This process is manual and we tend to prefer the next option, which involves reconciling your bank statement data.
However, we find some clients are not comfortable reconciling bank statement data themselves and prefer this slightly slower but easier-to-implement approach.
It's up to you!

Remove a payment from an invoice

You can remove the payment from Xero in one of two ways.
  • Navigate to the invoice > click on the 'Less payment' link on the bottom right of the invoice > Options > Remove & Redo
  • Navigate to the payment in the bank account > Options > Remove & Redo
If you created the payment manually, then it will delete the transaction from Xero.
If you created the payment from a bank statement data, then it will unallocate (but not delete) the cash receipt so it can be reconciled against something else.

Best Practice

These tips are based on decades of experience.

Send invoices from Xero without delay

Send invoices as soon as you provide goods/services (or possibly even earlier). Don't be afraid to ask your clients for money. They expect to be invoiced so don't dither.
Keep your design on-brand and simple. Make it easy for customers to find what they need, like your VAT number or your bank details.
Never offer payment terms to clients unless they have specifically negotiated terms beforehand. The average sales invoice is paid two weeks late. If you give someone two weeks to pay then you're essentially asking to be paid a full month after you raise your invoice. This may seriously affect your cash flow.
Remember: you are not in the business of lending money to your customers.

Make it easy for clients to pay

Set up a payment processor. It might take a bit of technical know-how but GoCardless works great for us. Direct debits are also cheaper than card-based payment services.
Be mindful of payment fees. PayPal and most card merchants charge a fee of up to 2.5% of the total payment. This might seem like a small amount but let's look at an example. If your business model generates 10% profit margin then a 2.5% payment fee represents one quarter of your profit!
Always include bank details on your invoice, even if you expect to be paid by other means. This is a useful fallback for when everything else fails.

Reconcile cash receipts against invoices every day

Make sales invoicing a daily habit. Prepare and send sales invoices immediately. This matters. Reconcile cash receipts every day. Without money coming in, you don't have a business.

Don’t be afraid to chase

The advantage of reconciling receipts every day is that you can set up automated reminders to chase overdue invoices. This saves you time and reduces the inconvenience of 'hassling' clients for payment. Let the robots to the work.
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