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Clearing Account and Payment Reconciliation with Xero
Clearing Account and Payment Reconciliation with Xero
Tony avatar
Written by Tony
Updated over a week ago

When an invoice is paid through Simplypaid, payment write-back occurs after the transaction clears, marking the invoice as paid in your Xero account. However, settlement typically takes place 2 banking days later when the funds are deposited into your bank account. To streamline your reconciliation process, we recommend implementing the following solution with a clearing account.

Benefits of a Clearing Account

To address the delay between payment processing and actual settlement in your bank account, it is a good idea to set up a clearing account in Xero. Some benefits include:

  1. Improved Reconciliation: Using a clearing account can help you reconcile your accounts more accurately. When payments are received through Simplypaid and marked as paid in Xero, they are initially recorded in the clearing account. This allows you to track these transactions separately until they are settled in your bank account.

  2. Clear Audit Trail: By utilizing a clearing account, you maintain a clear audit trail of your financial transactions. This can be valuable for accounting purposes, especially when dealing with delayed settlements or when you need to track the status of payments.

  3. Smoother Cash Flow Management: Having a dedicated clearing account can help in managing your cash flow more effectively. You can see the funds that are in transit versus those that are fully available, which is important for making informed financial decisions.

  4. Reduced Errors: Separating transactions in a clearing account reduces the chances of errors during reconciliation. It minimizes the risk of misclassifying transactions or overlooking pending payments.


Setting up your Clearing account in Xero

Step 1: In Xero

  • Login to your Xero Account

  • Select "Accounting - Chart of Accounts"

  • Click "Add Account"

    • Select Current Asset* under Account Type

    • Input your unique code and name for this clearing account

    • Select BAS Excluded under Tax

    • Ensure to tick "Enable payments to this account"

    *Note: Setting up the clearing account as a bank account is another option; however, it entails managing an additional bank account, thereby increasing administrative tasks. Therefore, a current asset account is highly recommended.

Step 2: In ezyCollect

  • Login to your ezyCollect

  • Select "Payment Settings"

  • Under "Payment Writeback" click Edit

    • Enable Payment Writeback

    • Make sure the Bank Account Code matches what you have in Xero

    • Input your Revenue Account Code

    • Click Save

  • Once the above is done, please inform your Customer Success Manager or email customersuccess@ezycollect.com.au to verify the configuration.

How to use the Clearing account and Reconcile invoices in Xero

Let's use the following customer, N&N Ski Shop as an example. Your customer went onto their Simplypaid Portal and paid 2 invoices (INV0375 and INV0376) on 6th May 2024 for a total of $16. They paid with a credit card and the payment cleared immediately. The same 2 invoices can be found in Xero and marked as "Paid".

Go to your Balance Sheet, under Current Assets, you will see the ezyCollect Clearing Account has a balance of $16. This matches the total of the aforementioned invoices paid on the 6th May 2024.

On the 7th May 2024, the payments have settled meaning you have received $16 in your Bank Account.

Simply match this bank statement line to your 007 - ezyCollect Clearing Account to complete reconciliation for this account.

The Balance Sheet will no longer show the Clearing account as there's now a $0 balance in this account.

In Summary:

  • Both invoices have been marked as paid in Xero

  • Bank statement has been reconciled

  • ezyCollect Clearing Account now has a zero balance

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