Clearing Account & Reconciling Payments

Overview

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/bookkeeper 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

Fortunately for you (and us) Xero has written a pretty great guide on setting up and using a clearing account. You can read it here.

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:

clearing_account_2.png

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:

clearing_account_3.png

 

Reconciling Payments

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:

clearing_account_4.png

 

Final Outcome

  • 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.

 

Handling Refunds

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
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