This is leaning more towards the accounting side of things. To avoid confusion or to help you understand a bit more we recommend working through this with your accountant/book-keeper or a friend who is “pretty good at that accounting sort of stuff”.
Pay Advantage marks Xero invoices as being paid once a payment has been processed, not when it is deposited into your bank account. This doesn’t impact the money you are being paid or received, however it can cause problems with how invoices are reconciled in your Xero account.
To avoid this causing problems, it is a good idea (and good accounting practice) to create a clearing account in Xero.
Setting up your Clearing account in Xero
When you are integrating Pay Advantage with Xero you must send Pay Advantage payments to a clearing account. A clearing account is used to hold transactions so they can be properly allocated and reconciled with your bank feed. You should not send Pay Advantage payments to your actual bank account in Xero. This way you have bank transactions appearing on one account and Pay Advantage payments on another, which creates an easy way to marry up your transactions in these accounts.
There is an option to create one or two clearing accounts when syncing with Pay Advantage. The reason for these accounts determines where Pay Advantage send payments depending on if it is a prepayment or a regular payment (Pre-payments are created when Pay Advantage cannot find the invoice it should attach the payment to). The simplest approach is to set up one account, which means all Pay Advantage payments are sent to the one account.
To set up clearing accounts create a new Bank Account with the following details:
Account Name: "PA Clearing Account"
Account number: 12341234
(These default account numbers ensure the clearing account is not associated with your actual bank account)
Alternatively you can set-up a clearing account using a non-bank account with payments enabled. You are able to see the type of the account in the Chart of Accounts screen in the type column.
If you need more information Xero has written a pretty great guide on setting up and using a clearing account. You can read it here.
If you also set up a different bank account for prepayments use the following details:
Account Name: "PA Prepayment Clearing Account"
Account number: 23452345
Select the "PA Clearing Account" in the Payments Clearing Account section of Pay Advantage Menu > Integrations > Xero > Settings
Select the "PA Clearing Account" in the Prepayments Clearing Account section of Pay Advantage Menu > Integrations > Xero > Settings (Unless you set up a prepayments clearing account in the optional step)
If your Bank Account is NOT showing up in Pay Advantage you may not have set a code for it in Xero. All accounts must have a code to be available in Pay Advantage.
To change the code for your Bank Account in Xero, go to your Chart of Accounts section and edit the Bank Account details. Check out how do this with the image below;
If you have any questions about setting up your clearing account in Xero we recommend you contact their support here.
Invoices in Xero
Regardless of whether they were created in Xero, payments were received through an external gateway, or the invoices were inserted from an external application like a shopping cart, you now have a bunch of invoices created on the same date, with payments applied:
Note that these invoices have been paid. A payment has been created on each invoice via the API. In this example, the payment has been linked to your Pay Advantage clearing account we created previously.
Payments Clearing Account
If you take a look at your balance sheet report right now. Under current assets, your Pay Advantage clearing account has a balance of $3,500. This matches the total of the sales invoices created and marked as paid today:
If you take a look at your bank account in Xero, you can see that you have received some funds from Pay Advantage. These are lump sums that do not correspond directly to a specific invoice, but rather the settlements from Pay Advantage.
You will create a receive money transaction, coding this to your Pay Advantage clearing account will allow you to record it against the invoices that was received in your bank account:
BPAY payments are received as prepayments if they do not have an invoice, or the amount received is larger than the invoice. When a prepayment is received Xero creates a credit invoice (prepayment) which is different to a regular invoice. When you find a credit invoice, you will need to attach it to a standard invoice to show it has been paid.
- Sales invoices have been marked as paid in Xero
- Bank statement has been reconciled
- Pay Advantage clearing account now has a zero balance
The next time the user goes to reconcile, the Xero bank reconciliation screen should auto-suggest the receive money transaction - the user just needs to click OK.
In the event a charge is refunded, you can handle this by the following:
- Create a credit note raised against the customer in question, reversing the sales invoice
- Apply a payment to the credit note, coding the payment to the Eftpos clearing account. This reduces the balance of the clearing account
- Your next remittance will be less than the total sales as it will also include the refund. This will therefore match the balance of the clearing account