Xero is one of the best small business accounting applications. It's especially good for businesses with several employees who need to access the software because Xero allows unlimited users at no extra cost. It supports every element of financial management needed by both young and growing companies. The application uses artificial intelligence (AI) effectively in areas like bank account reconciliation, and its advanced reporting abilities are unique. New functionality since our last review in 2022 includes 1099 management and visualization in reports. Even if you need to include payroll in your accounting, you can with Xero, thanks to its integration with Gusto. That said, FreshBooks and Intuit QuickBooks Online are our Editors' Choice winners for small business accounting apps due to their intuitive operations, flexibility, and smart selections of accounting features.
How Much Does Xero Cost?
Xero comes in three pricing levels, all of which kick in after a 30-day free trial, and they all support unlimited users. Xero Early ($15 per month) has monthly limits of 20 invoices and quotes and five bills. With this tier of service, you can capture receipts and run reports. Xero Growing ($42 per month) adds unlimited billing and invoicing and quotes. Xero Established ($78 per month), the version we tested, is the only version to offer multiple currency support. It also supports projects, advanced analytics, and employee expense claims. Look for discounts and promotions when signing up, as they often pop up.
The version of QuickBooks Online that's most similar to Xero Established costs $90 per month. One of the lowest-priced accounting services for small businesses is Patriot Software Accounting Premium ($30 per month). Zoho Books now has six pricing levels that go from free to $275 per month; it's $70 per month for a version similar to Xero Established.
Is Xero Safe to Use?
We consider Xero safe. The app has multiple layers of protection for the personal and financial information you entrust to the company, including encryption when data is transferred and stored. Multi-factor authentication adds an additional layer of security. All the company’s servers and data centers have robust physical security controls, as well as 24/7 monitoring and surveillance. And Xero does regular data security audits and monitors security systems to identify and manage threats.
What Is Two-Factor Authentication?Getting Started With Xero
It would be impossible for a small business accounting application to fully automate the setup process. There’s just too much to do and too many details to get right. Most accounting programs at least ask basic questions about your business, though Xero doesn’t ask as much as FreshBooks, for example.
After you’ve set up an account, Xero suggests a handful of accounting tasks you can do to start learning the ropes. You can play with the app using a demo company and fake data, which is the best place to start practicing. When you’re back in your live account, you should spend some time establishing your preferences for settings like user permissions, currencies, invoices, and online customer payments.
What’s It Like Using Xero?
The first page you see when you log in to Xero is your dashboard, which shows the charts and numbers you need at the beginning of a work session: account balances and an account watchlist, bill and invoice status, total cash in and out, and expense claims. Number totals are links that take you to the underlying transactions.
(Credit: Xero/PCMag)There’s nothing exceptional about Xero’s user interface and navigation, but I find using it to be a pleasant and professional experience. A simple toolbar divides Xero’s features into logically organized menus, and individual working pages are intuitive (with some exceptions) and clean.
Xero doesn't have FreshBooks’ aesthetically pleasing design, especially in areas like invoices and contact records, which are particularly plain. Xero’s look and usability have improved over the years, but navigation can still be confusing, especially when you’re trying to go to a previous page.
Using Sales Tools in Xero
Setting up your database of customers should be one of your first sales tasks in Xero. The site has very generous import capabilities. In addition to adding customer data in CSV or TXT format, you can download templates for data like invoices, budgets, bank statements, inventory items, Charts of Accounts, and fixed assets. When you enter customers manually, the record templates cover the basics capably without having some of the extras that Zoho Books does. For every contact, you get a home page with access to all their details. There’s one unusual extra, though: the ability to block new invoices when a customer’s credit limit is reached.
(Credit: Xero/PCMag)Xero’s thorough online help files come in handy when you want to modify a sales form. These tools aren’t as intuitive to use—nor are the data fields as plentiful—as they are in QuickBooks Online. Any advanced modifications you need to make must be done in Microsoft Word. The forms don’t miss anything major, though they don’t have FreshBooks’ state-of-the-art look.
Templates are available for one-time and repeating invoices and quotes, and you can queue up multiple statements to print or email. A dedicated sales overview page has a summary of the status of your invoices and quotes so you know where they are in the process of being created, approved (Xero adds this step, where competitors don’t), awaiting payment, and overdue.
(Credit: Xero/PCMag)Managing 1099s and Bills With Xero
Supplier record templates, like customer records, contain basic contact information as well as purchase defaults and financial details like bank account numbers and tax IDs. You can also add suppliers and contractors to the group of people who need a Form 1099 from you. Enhanced capabilities here let you set up tax assignment rules and create reports that feed into integrated Xero apps to create 1099s at tax time. You can also send links to contractors that take them to the W-9 forms they must complete. The automation is slick, and it's a real time-saver.
Bills can be emailed or uploaded to Xero, or you can enter them manually and record payment—though there's no online bill pay such as QuickBooks Online offers. The app then pulls details from the bills and enters them on Xero bills. Xero also supports purchase orders.
Does Xero Track Inventory?
Xero lets you enter your purchase and sales accounts as well as prices for products and services you sell. It can also track inventory. One problem is Xero doesn’t prevent you from creating an invoice when you try to sell more items than are available (though inventory isn’t affected). You do get warnings, but they’re different depending on whether you’re using the new or Classic invoice template. You also can’t set a reorder point, and you have to go through the inventory adjustment process to add your opening stock level, which QuickBooks Online handles during the creation of an item record. You can’t bundle items to build assemblies, either.
For small businesses that rely on having accurate and helpful inventory tools, I recommend QuickBooks Online or Sage 50 Accounting instead.
(Credit: Xero/PCMag)Tracking Projects and Profitability in Xero
Xero has tools to create, monitor, and track the profitability of projects. Each project’s home page shows transactions that have been assigned to it: quotes and invoices, time entries, and tasks and expenses. So it’s easy to see the money that’s been spent and on what, and adding transactions isn’t a problem. But the project infrastructure isn’t as clear as it is in FreshBooks. There was a total in one project for items that needed to be invoiced, but I couldn’t just click a link to find them. Navigation is not always intuitive, so the learning curve is steeper than it might be.
Sophisticated Reports
Xero’s selection of reports is well-suited to the site’s features. You can customize your view to zoom in on the subset of data you want, and its export options are generous, though in testing, some tools for customizing reports didn't work as expected.
Xero also has two advanced reports that provide insight and analysis beyond what the site’s other reports do. One offers short-term (30-day) cash flow projections, along with suggested actions that might improve your outlook. The other, Business Snapshot, includes numerous tables and graphs that illustrate financial ratios and metrics. I’ve not seen this level of sophistication in other accounting applications.
(Credit: Xero/PCMag)Accessing Xero Via Mobile App
Xero has three separate mobile apps. One replicates some of the tools and data on the browser-based version. It has a great dashboard and abbreviated versions of contact records and sales and purchase transactions. You can create new ones and edit existing ones. I like these apps for their simplicity and usability.
Xero Expenses supports employee expense claims and lets users snap photos of receipts. Xero then transfers some of the details onto expense transaction forms.
The third is Xero Projects, which allows users who don’t have full access to Xero to still document their project work.
(Credit: Xero/PCMag)Should You Use Xero?
Xero is best for small and growing businesses where multiple people access the accounting software. The app helps you manage every element of your finances, including payroll, thanks to its integration with Gusto. It could still do a better job with its navigation, but that doesn't affect Xero's ability to crunch numbers.
If Xero doesn't sound right for you, we recommend two Editors' Choice winners for small business accounting software: QuickBooks Online and FreshBooks. QuickBooks Online has the best combination of accounting features and usability available today. FreshBooks is best for very small businesses, such as freelancers and independent contractors.