How do you handle direct debit reconciling in XeroXero is an incredibly useful software solution for any small or medium-size business looking for a tool with accounting. Xero allows you to manage invoicing, bank reconciliation, bookkeeping and more. Bank reconciliation is one of the most important business tasks you can perform. When everything is reconciled, you know that you’re on top of your cash flow. On the other hand, if you’re coming up short somewhere, you need to investigate the problem. Whether the issues is with the bank or your books, or if it was just a simple oversight.

 

Direct Debit Reconciling

 

However, when reconciling your bank accounts at regular intervals, you need to be aware of how to handle direct debits in Xero. If you’re unaware of how direct debit transactions are processed they can wreak havoc on your accounting books. A Xero account can reflect the debit immediately as being paid from the invoice. Unfortunately your bank records will not reflect the debit as income due to bank processing and settlement times. This can cause discrepancies in your cash flow. In addition, if you don’t receive an invoice for a direct debit, you likely won’t be able to reconcile the bank account for that debit within Xero.

So how do you do it? You have two options–take care of the problems as they arise, or plan ahead.

The first method is to handle things on a case-by-case basis. If Xero doesn’t know what to do with a direct debit in your bank statement, it will display a box–next to the debit. You can then enter details about that transaction and create a “direct payment” transaction. While this is a simple way of dealing with the issue, it will also create more work for you. Especially in the long run if the direct debit recurs on a regular basis.

 

Utilize Xero Bank Rules & Clearing Accounts

 

Instead of handling each transaction on a case by case basis, it’s more convenient to plan ahead. You can do this by using a clearing account along with bank rules in Xero to compensate for the settlement lag. Bank rules tell Xero how to behave each time it finds a transaction that matches that rule. To create a bank rule for direct debits, select Spend Money Rule while on Xero’s Bank Rules screen, and enter the conditions for the rule. You can base your conditions on the payee, the amount paid and a number of other factors.

 

 

 

Use Xero + IntegraPay

 

By using Xero with IntegraPay you can resolve this delay issue. You can do this by auto reconciling the direct debit transactions in Xero to a clearing account. For recurring invoices to direct debit clients, IntegraPay will mark the invoice as paid once confirmation of a successful transaction has been received. IntegraPay within Xero will also then reconcile this payment and invoice against your clearing account. Once the funds finally settle and appear in your bank account, a bank rule in <Xero then reconciles these settlements. It then applies a credit to the clearing account so it balances.

There is no manual reconciliation or invoice matching required and it is a perfect solution if your business is looking to scale in size. This automated process can also help save you time+money on administration and assists with solidifying your cash flow. Setting up and configuring an IntegraPay account with Xero can be completed in under 10 minutes. Watch the video below to see just how easy it is to set up and configure Xero to use IntegraPay’s auto direct debit and reconciliation feature.