Direct debits in Xero

[ph001]

Hi all,

...drum roll..... and today's Xero question is:

How should I best process direct debit transactions in Xero? A good example is our business insurance which we pay monthly but don't get an invoice every month.

This means there is nothing to reconcile the debit against in the bank. There seem to be 2 options:

1) 'Create' the spend monry trasaction in the bank reconciliation screen. This is the quickest and easiset method but this line from the help concerns me a little:

Direct payments: use for straightforward money spent. (Not for payments on bills, bank transfers, overpayments or prepayments.) Direct payment is the default option when you add a Spend Money transaction.

You can't create a new invoice, bill or expense claim from this screen. So if you create a spend or receive money to reconcile your statement line (when you should create a bill or invoice) your transaction won't show on any invoice-based reporting, e.g. the Aged Payables report.

2) Manually type a bill in in the Purchases > Bills each time. But this is more long winded and essentially I'd be making it up!


Which is best practice?

 

[Scalloway]

I would go for 1. You are entering these transactions to make sure your accoounts match the bank account, not to create work for youself.

 

[ph001]

I agree option 1 is easier but this is a genuine bill so is it right that it would not show on any invoice based reporting?

 

[Scalloway]

It depeds what you need to get from your accounts. If you want every single payment to appear in your creditors ledger then go for option 2. If you just want your accounts to reflect money spent as it is spent then go for 1.

In general putting invoices to the Creditors ledger is done because you get a bill in then pay it at a later date. This ensures that your accounts reflect the correct picture. Some Direct Debit payments are done monthly pretty much in line with when the expense is due, such as insurance for example.

 

[ph001]

Ok, thank you. Have gone for option 1 and set up a rule for future debits.

I think when Xero help says:

"Not for payments on bills"

...it is referring to a bill which already has a physical invoice entered.