Managing Expenses in Xero

Step-by-step guide to managing expenses in Xero (both business bills and employee expenses)

1. Record Business Bills (Supplier Expenses)

   • Go to Business > Bills to pay > New bill.
   • Enter:
     • Supplier name
     • Bill date & due date
     • Reference (invoice number)
     • Description of goods/services
     • Account code (e.g., Rent, Utilities, Office Supplies)
     • Tax rate (GST, VAT, or Sales Tax if applicable)
   • Save as Draft, Awaiting Approval, or Awaiting Payment.

2. Upload Receipts with Xero Files

   • Drag and drop scanned receipts or email them to your Xero inbox.
   • Attach receipts to bills or spend money transactions.
   • Keeps digital copies for audit and compliance.

3. Use Xero Expenses (for Employee Claims)

   • If you’ve enabled the Xero Expenses app:
     • Employees can snap a photo of receipts and submit claims.
     • Approvers review and authorize expenses.
     • Approved claims are reimbursed via payroll or bank payment.

4. Pay Expenses

   • When paying a bill or expense:
     • If using bank feeds, match payment to the bill during reconciliation.
     • Or record a manual payment directly in the bill screen.
   • Partial payments are supported—Xero will track the remaining balance.

5. Set up Recurring Expenses

   • For regular expenses (e.g., rent, subscriptions, utilities):
     • Open a bill → Options > Repeat.
     • Define frequency (weekly, monthly, annually).
     • Saves time and ensures nothing is missed.

6. Track Employee Expense Claims

   • Go to Business > Expense claims.
   • Review pending claims.
   • Approve or decline.
   • Once approved, pay employees directly from Xero.

7. Reconcile Expenses

   • Match expense payments with bank statement lines during reconciliation.
   • Use bank rules for recurring vendors (e.g., electricity, phone bill) so expenses auto-code.

8. Reporting on Expenses

   • Run reports to analyze spending:
     • Expense Claim Summary (employee reimbursements).
     • Account Transactions (by category, e.g., Travel, Rent).
     • Budget Variance (compare expenses to your budget).

Managing expenses in Xero is far more than just entering bills. The advanced features help with automation, approval workflows, compliance, and real-time insights. Here’s a full breakdown:

Advanced Features of Managing Expenses in Xero

Expense Claims & Reimbursements

• Employees can submit expense claims via the Xero Me app (receipts, mileage, per diems).
• Managers can review, approve, and reimburse directly through Xero.
• Auto-syncs into payroll or accounts payable.

Receipt Capture & OCR (Hubdoc Integration)

• Use Hubdoc (free with Xero) to capture bills and receipts.
• OCR (Optical Character Recognition) extracts vendor, date, and amount automatically.
• Transactions flow directly into Xero, ready for review and coding.

Multi-Currency Expense Management

• Enter expenses in foreign currencies.
• Automatic conversion using daily FX rates.
• Realized/unrealized foreign exchange gains/losses tracked automatically.

Recurring Expenses & Subscriptions

• Set up recurring bills for rent, utilities, subscriptions, or vendor contracts.
• Automates posting, reducing repetitive data entry.

Tracking Categories on Expenses

• Allocate expenses to departments, projects, locations, or cost centers.
• Run segmented P&L reports (e.g., Marketing spend by region).
• Helps with internal cost control.

Custom Approval Workflows

• Bills can go through multi-level approval (e.g., department head → finance manager).
• Ensures control before payment.
• Useful for medium to large businesses.

Mobile Expense Management

• Capture receipts on the go via Xero mobile app.
• Employees upload directly into the system, reducing paper clutter.

Integration with Bank Feeds & Rules

• Match expense transactions automatically to bills or spend money entries.
• Use bank rules to auto-code frequent vendor expenses (e.g., Uber → Travel Expenses).
• Reduces reconciliation work.

Batch Payments & ABA/SEPA Files

• Process multiple supplier payments in one batch.
• Export payment files for upload to your bank.
• Supports ABA (Australia), SEPA (EU), BACS (UK) and similar standards.

1Attachments for Audit Trail

• Attach receipts, contracts, or purchase orders directly to expense transactions.
• Improves compliance and simplifies audits.

1Budget vs. Actual Analysis

• Compare expenses against set budgets.
• Identify overspending quickly.
• Supports proactive cost control.

1Integration with Payroll (for Reimbursements)

• Expense reimbursements can be processed through payroll runs.
• Reduces separate payment processes for staff.

1Reporting & Analytics

• Advanced reports like:
  • Expense by Supplier
  • Expense by Tracking Category
  • Expense Claims Summary
• Useful for cost analysis and vendor management.

Tip: The most powerful combo is Hubdoc + bank rules + approval workflows — it automates data entry, ensures accuracy, and keeps expense control tight.