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Xero vs FreshBooks

This article examines Xero vs FreshBooks by concentrating on the main features that accounting software should offer. The data has been collected from Xero’s and FreshBooks’s websites and help articles. We also checked their reviews at Capterra to find the aspects that the actual users are emphasising. 

Review

In Capterra, Xero has a rating of 4.3, with the highest score for Ease of Use. 

Trustpilot introduces Xero as a Great tool with a 4.2 TrustScore.

In Capterra, FreshBooks has a rating of 4.5, with the highest score for Ease of Use. 

Trustpilot introduces FreshBooks as an Average tool with a 3.3 TrustScore.

Bookkeeping

Banking 

  • Bank Connections: You can add your bank account to Xero, and your bank will update your account. 
  • Bank Reconciliation: After connecting your bank account to Xero, the bank data will appear automatically in Xero on a daily basis. This data is also reconciled with bills, receipts, and invoices.

Automate Data Entry

With Xero, your employees can take photos of their expenses’ receipts. You will get notifications of these activities in Xero. Xero does the data entry automatically. Using Hubdoc, Xero extracts data from photos, emails, and scanned documents, and you do not need to do the manual data entry. 

Xero subscribers of Early, Growing, and Established plans can use Hubdoc to capture the data described above.

Automated Bank Reconciliation

Bank Reconciliation involves the comparison between your financial records and the bank transactions you’ve imported. It identifies any inconsistencies that require correction. Additionally, you have the ability to instantly generate a concise report summarising these findings and export it to Excel.

Online Accountant

FreshBooks and Mazuma collaborate to guarantee the accuracy of your financial records. While FreshBooks monitors each incoming monetary unit, Mazuma takes charge of your monthly financial statements, submissions to HMRC and Companies House, payroll management, and VAT returns. Mazuma provides you with a direct link to an online accountant who guides you through every phase of the process.

Payment

Deposits for Vacation Rental Businesses

You need to create an invoice for the deposit and match it with the guest’s payment in the bank. Whenever you need to refund the deposit, you can create a Credit Note in Xero and complete the payment box, which is located at the bottom of the same page.

Pay Now Button

You can ask your customers to pay the moment they receive the invoice by pressing the Pay Now button. You can accept different currencies with the payment. Xero charges you for payments through the Pay Now button on the invoices. 

Payment Options

Xero offers multiple payment options such as debit cards, credit cards, direct bank debit, and many more. You can take payments using Stripe, GoCardless, etc. Stripe is for payments by debit card, credit card, Apple Pay, and Google Pay, and GoCardless enables direct debit. 

Expense Claim

Whenever a staff member pays a bill or an expense, they can record it via the Expense Claim option.  

Deposit Speed

Depending on your payment processor and bank account, it takes 2-10 days to get the money via Xero in your bank account.

Recurring Payments

The due dates of the bills are visible through the system in Xero. You can also schedule payments and batch payments. 

By emailing the bills to your Xero inbox, you can store the bills in one place and access them online. 

Quotes & Estimates 

With Xero, you can create online quotes and estimates from the app and the software. You can also set an Accept button to enable your customer to accept or decline the quote you have made. You can also see if your customer has viewed the quote. If the quote is accepted, you can convert the quote into an invoice.

Multi-Currency Accounting

With the Xero Established plan, you can accept money and offer services in over 160 currencies. Xero uses up-to-date exchange rates for currency conversion. You can make reports in local currency.

FreshBooks Payments (WePay)

FreshBooks Payments Powered by WePay allows businesses in Canada and the US to receive online payments in USD or CAD with credit cards and bank transfers (ACH).

Transaction fees for businesses in the United States:

  • Bank Transfer (ACH): 1% (caps available for Select)

Transaction fees for businesses in Canada and the United States:

  • Visa credit, MasterCard, debit, discover credit, and prepaid cards: 2.9% + $0.30
  • American Express credit and prepaid debit cards: 3.5% + $0.30

Barclaycard

Barclaycard is a payment gateway that allows businesses in the UK to receive online payments in GBP with credit and debit cards by Barclays via SmartPay Fuse.

Transaction fees:

  • Consumer Cards: 1% + 15p for per transaction
  • Commercial Cards: 1.9% + 15p per transaction
  • International Cards: 2.9% + 10p per transaction

PayPal 

PayPal allows you to receive online payments in several currencies with PayPal balances, as well as credit and debit cards. You can find the list of PayPal transaction fees here.

Stripe

Stripe and FreshBooks Payments Powered by Stripe allow you to receive online payments in several currencies with credit cards including Apple Pay, and bank transfers (ACH).

Stripe also supports Pre-Authorised Debit (PAD) for Canadian businesses, BACS Direct Debit for UK businesses and SEPA Direct Debit for European businesses.

You can find the list of Stripe transaction fees here.

Invoicing

You can make a customised invoice layout with your logo on it. You can even make the invoice on your mobile. Xero also allows you to attach documents along with the invoice you send. Your customers can pay you by receiving your online invoice. You can accept payments through debit and credit cards and direct debit. Xero has also automated invoice reminders.

Heelan Associates says a minor negative point about Xero: “If you need to change the date in an invoice that already has a payment, you must delete it.”  

Whenever you need to refund a certain amount of money to the guest, you should raise a Credit Note. On the Credit Note page, there is an optional section where you can allocate this Credit Note to the corresponding invoice.

FreshBooks’ invoice generator helps you create an invoice, customise it, incorporate your logo, and personalise your thank you email. It also enables you to request a deposit on your invoice.

Here are other invoicing features of FreshBooks:

  • Add invoice due dates.
  • Customise invoice payment terms.
  • Offer discounts.
  • Automatically calculate taxes.
  • Preview invoices before sending.
  • Choose your preferred currency.
  • Receive instant updates when an invoice has been viewed and paid.
  • Get invoices from anywhere with the mobile app.
  • Automatically track inventory billed on invoices.

Reporting

Xero enables you to create and customise reports online. You can make your favourite list of reports with your preferred layout and reuse them. It also allows adding formulas and details to the reports. The list of reports in Xero is as follows: 

  • Account transactions
  • Aged payables summary
  • Aged receivables summary
  • Balance sheet
  • Profit and loss
  • VAT return

To see how your business performs, you can add your detailed budget and get graphs and analyses. 

You can export reports into PDF files or spreadsheets. The reports produced will be read-only versions. 

Xero users with advisor roles can lock specific dates to stop bringing changes related to that period to reports. 

You can use tracking categories for making reports, such as rental income, cleaning, etc. 

To manage multiple properties, you can either use the tracking categories option or create a ledger for each property in the Xero chart of accounts. 

If you have a small number of properties, you can use tracking categories. By determining each property as one location, you can make income and expenses reports by location to send to the owner.  

You can also create a ledger for each property in the chart of accounts in Xero. After that, allocate cards to each property. If you want to record the costs related to the cleaners, manager, and owner, you should create contact cards for each.

FreshBooks employs dashboard and other kinds of reporting, such as:

  • Colour-coded breakdown of spending
  • Summary of most recent activity
  • VAT return report
  • Profit and loss report
  • Sales tax summary report
  • Accounts ageing report
  • Payments collected report
  • Accounting reports (general ledger, trial balance, chart of accounts)
  • Expense report
  • Invoice details report
  • Report filtering by client, team member, or date
  • Saving, exporting, or printing of financial reports for your accountant
  • Time tracking and project profitability reports

Tax Management

Xero automatically creates sales tax reports. You can change the sales tax rates set up as 0% to default tax rates. You can change these rates again for a singular item. Xero calculates sales tax on different items of your invoice.

Xero sales tax reports equip you with the required information you need to submit tax forms.

FreshBooks efficiently reduces the time and financial investment of tax professionals through its cloud-based accounting software.

The following capabilities catering to tax preparers are accessible across all subscription plans:

  • Timer to track billable hours.
  • Automatically import expenses.
  • Customisable invoices you can send online.
  • Estimate templates to win new clients.
  • Securely accept credit cards.
  • Simple dashboards to monitor your business at a glance.
  • Financial reports.
  • Project budgets to keep spending on track.

Inventory Management

The inventory management tool of Xero is for keeping track of the inventory to check the availability of each item, the best-selling item of the stock, and making balance sheet reports. It is especially functional for retail stores.

Vacation rental managers use an inventory checklist to check the availability of items to have an overview of what is needed.

The inventory tracking feature in FreshBooks enables you to add, modify, and assess inventory related to items that can be billed in your account.

By including inventory information in FreshBooks items, you will receive notifications for item shortages.

If you’re already monitoring your inventory through platforms like Shopify, Squarespace, BarCloud, or 2Ship, you can import your data into FreshBooks using the specific integration provided by each of these platforms.

Pay Bills

With Xero, you can:

  • Review unpaid bills, expenses, and purchase orders.
  • See bills in different states: drafted, waiting for approval, or ready to be paid.
  • Pay suppliers with multiple bills in one simple transaction.
  • Organise your payments in advance to make sure they’re all ready to go.
  • Keep your bills organised in folders.
  • Enter data while bills are displayed on the screen.

FreshBooks offers an accounts payable function designed to streamline organising your bills, consolidating all your bills into a single, user-friendly location. With this feature, you can easily monitor the due dates, purposes, and amounts of your bills.

Payroll

For keeping the record of pay runs and payroll, you can keep records of a few employees with Xero, and for large numbers, you need to integrate Xero with a payroll app.

FreshBooks integrates with some payroll service providers, including Gusto, a user-friendly payroll solution designed for small enterprises.

FreshBooks ensures that all payroll transactions are effortlessly imported into your account, registering them as expenses. In addition to tax calculations, Gusto takes the extra step of automatically submitting these tax filings to the appropriate governmental bodies whenever you process payroll.

Mobile App

Xero is cloud-based software, and providing mobile applications is essential for being cloud-based. It has five mobile apps: Xero Verify, Xero Accounting, Xero Projects, Xero Expenses, and Hubdoc.

Xero Verify is an authenticator app to log in to Xero using push notifications.

Xero Accounting allows you to view your bank account balances, profit and loss, cash flow, outstanding invoices, and bills to pay. You can manage bills, convert quotes to invoices, and reconcile your bank accounts. 

Xero Project is an app dedicated to the Xero Project feature of Xero. You can download it for free, but you need to pay extra depending on the number of active users. 

Xero Expenses is an app dedicated to managing employee expenses and mileage. 

Hubdoc is a mobile app to help you if you have a Hubdoc organisation. With Hubdoc, you can upload documents from your desktop, phone, scanner, etc., and this app extracts the data from them.

FreshBooks mobile app enables you to:

  • Respond to your clients’ questions and feedback.
  • Know instantly when a client has viewed their invoice.
  • Know when an invoice has become overdue.
  • Create and send professional invoices.
  • Snap pictures of receipts.
  • Stay on top of important updates.
  • Track mileage for tax deductions.

Pricing

Xero has three pricing plans: Early, Growing, and Established. The monthly subscription fee is £12 for the Early plan, £34 for the Growing plan, and £65 for the Established plan. You can always cancel your subscription with a one month’s notice.

The Early plan limits you to 20 invoices and five bills, but you can capture data with Hubdoc in all the pricing plans. Bulk reconciling transactions is doable by purchasing the Growing plan, but using multiple currencies is only available in the Established plan.

All the plans include 24/7 online support.

FreshBooks has four pricing plans: Lite, Plus, Premium, and Select. The monthly subscription fee is £9.60 for the Lite plan, £17.60 for the Plus plan, and £28 for the Premium plan. The Select plan offers optimised pricing tailored to your business needs.

FreshBooks gives a 10% discount for yearly subscriptions.

Xero vs FreshBooks: Which Accounting Software to Choose?

Xero is a robust cloud-based accounting software known for its comprehensive features and user-friendly interface. It offers a wide range of tools for managing invoicing, expenses, bank reconciliations, and financial reporting. With its strong emphasis on collaboration, Xero allows multiple users to access and work on the same data simultaneously. However, Xero is one of the market’s most expensive accounting software solutions. Xero is popular with small to medium businesses in Europe and New Zealand and offers good support.

FreshBooks is a user-friendly accounting solution designed primarily for small businesses and freelancers. It offers a simplified approach to accounting with easy-to-use features for creating professional-looking invoices and tracking expenses. FreshBooks excels in invoicing and time-tracking capabilities, making it an ideal choice for service-based businesses. However, it does have limitations when it comes to the number of users. So, it might not be suitable for larger businesses or those with extensive collaboration needs.

We are committed to ensuring that all our comparison articles are factually entirely correct and accurate. If you have spotted anything that you feel is wrong or misleading in this article, we’d appreciate hearing from you.

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