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 payments to a clearing account. You should not send Pay Advantage payments to your actual bank account in Xero. Instead you must create a new Bank Account with a fake account number and bsb, or set-up a clearing account with payments enabled.
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.
Alternatively you can use a fake bank account in Xero. This bank account does not have to use a real account number and BSB. When your settlement appears in your bank feed (to your real bank account), it will get reconciled to this prepayment clearing account (fake bank account) as well as the clearing account used for invoice payments.
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:
- 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