Managing subscriptions and recurring revenue can be a chaotic mess for many businesses using Xero.
Luckily, with some simple setup and organization in Xero, you can effectively streamline subscription management to recognize revenue accurately and automate renewal reminders.
In this post, you'll learn key techniques for organizing subscriptions in Xero - from establishing recurring billing and account hierarchies to integrating with Chargebee for enhanced efficiency. You'll be able to master subscription management in Xero to keep accurate books and maximize recurring revenue.
Introduction to Subscription Management in Xero
Xero is a popular cloud-based accounting software that helps small businesses manage their finances, including tracking revenue streams from subscriptions and recurring payments. However, effectively setting up and organizing subscriptions in Xero can be challenging without the right tools.
Properly managing recurring billings and payments in Xero provides several key benefits:
- Improved visibility into subscription revenue and cash flow forecasts
- More accurate financial reporting on a monthly/quarterly basis
- Streamlined payment reconciliation between Xero and payment gateways
- Better insights to make data-driven business decisions
This article will provide an overview of managing subscriptions in Xero, from understanding the built-in features to exploring integrations that can enhance recurring revenue management.
Understanding Xero for Subscription Management
Xero offers robust accounting and financial management capabilities for small businesses. Its flexible chart of accounts allows businesses to configure account categories specifically for subscription revenue.
However, Xero lacks native features to fully automate subscription management processes like:
- Payment retries and intelligent dunning to reduce revenue leakage
- Automated revenue recognition
- Subscription tracking and reporting
Therefore, many businesses use Xero's 500+ app integrations, like Chargebee, to complement the accounting software's capabilities.
The Importance of Managing Recurring Payments in Xero
Trying to manually track and reconcile recurring revenue data across payment gateways and accounting platforms is extremely tedious and error-prone.
Without proper automation, businesses often face issues like:
- Inaccurate cash flow forecasts due to failed payments
- Poor visibility into subscriber metrics like MRR and churn
- Difficulty tracing specific revenue to the appropriate GL code
- Increased overhead in payment reconciliation efforts
These problems get amplified as subscription volume grows over time.
Advantages of Streamlining Recurring Revenue in Xero
Integrating a dedicated subscription management platform like Chargebee with Xero provides:
- A centralized subscriptions dashboard providing MRR, bookings, and churn insights
- Automated revenue recognition and reporting
- Intelligent dunning to minimize failed recurring payments
- Two-way sync between payment and accounting data
The outcome is more efficient and error-free accounting workflows to effectively track and manage overall business revenue.
With a clear picture into subscription performance, businesses can confidently make strategic decisions to optimize growth opportunities.
How do I take over a subscription in Xero?
When an existing Xero subscriber transfers a subscription to you, you'll receive an email invitation to accept the transfer. Here are the steps to complete the transfer:
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Click on the link in the transfer invitation email. This will take you to the Xero sign-in page.
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If you don't already have Xero login credentials, you'll go through the process of setting up an account during the transfer acceptance flow.
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Once logged in, you can review and accept the details of the subscription transfer, including the specific organization and plan that is being transferred.
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As the new subscriber, you have the option to change the pricing plan if needed. Upgrading or downgrading the plan can be done seamlessly during the transfer process.
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After accepting the transfer, the subscription billing and details will be under your account management going forward. You have full administrator access at this point.
The key things to note are that you need to click the confirmation link to initiate the transfer on your end, and can upgrade/downgrade the pricing plan if desired. Accepting the transfer provides you with ownership of the subscription for that organization. Let Xero support know if you have any other questions!
How do I change my subscription plan in Xero?
To change your Xero subscription plan:
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Log in to your Xero account and click on the organization name in the top right corner. Select "Subscription and billing".
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On the next page, click the "Manage Subscription" button.
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On the Manage Subscription page, click the "Change plan" button.
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You will then see a list of all available Xero subscription plans. Select the plan you would like to upgrade or downgrade to.
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Xero will then take you to the next page to select any add-ons you may want like Projects, Expenses, Planday, or Analytics Plus. Select any add-ons you require.
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Xero will then show you a final review page with your new selected plan and add-ons. Review the details and pricing, then click "Pay now" to confirm the subscription change.
And that's it! Xero makes it simple to upgrade, downgrade, or change subscription plans as your business needs change. Just a few quick clicks and your new plan will be activated.
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What is a subscription in Xero?
A subscription in Xero refers to the recurring payments that a Xero user sets up to pay for access to the Xero accounting software and its features.
When a user signs up for Xero, they select a subscription plan that determines what features they can access and how much they pay on a recurring basis - usually monthly or annually. The basic subscription plans include:
- Starter - For small businesses just getting started with accounting software
- Standard - For growing small businesses with more complex needs
- Premium - For larger or more established businesses
There are also add-on subscriptions like Payroll and Projects that provide additional functionality.
As the Xero subscriber, you are the primary user that registered the Xero organization and hold the highest level of access permissions. The subscriber can add users, assign roles like bookkeepers or accountants, manage billing details, change subscription plans, and control overall settings.
So in summary, a subscription centers around the regular payments that provide ongoing access to Xero's cloud accounting platform, with the subscriber acting as the owner and administrator. Understanding your subscriptions allows you to optimize costs as your business changes over time.
Setting Up and Managing Recurring Revenue Streams
Recurring revenue streams through subscriptions can provide a valuable source of consistent income for businesses using Xero. However, properly setting up and managing these subscriptions within Xero is important for accurate accounting and revenue tracking. This section provides helpful guidelines for optimizing subscription management in Xero.
Establishing Recurring Billing and Subscriptions in Xero
To start tracking recurring subscription revenue in Xero, you first need to correctly establish the recurring bills and payments:
- Navigate to Accounts > Recurring Bills in the Xero interface
- Click "Add new recurring bill" and fill out billing details like customer, frequency, payment method, etc.
- Make sure the billing and subscription details are accurate before saving
- Connect payment gateways like Stripe to facilitate automatic subscription payments
Accurately establishing recurring bills is crucial for proper revenue tracking over time.
Utilizing Account Hierarchy for Subscription Organization
Xero enables creating an account hierarchy to categorize financial transactions, including subscriptions. To organize subscriptions:
- Go to Settings > General Settings
- Under Account Settings, choose "Enable account hierarchies"
- Create parent and child accounts for subscription types
- When entering bills/payments, allocate to appropriate child accounts
Proper hierarchy organization helps segment subscription revenue sources.
Ensuring Accurate Payment Reconciliation for Subscriptions
Reconciling payments is also important for managing subscriptions in Xero:
- Go to Accounts > Reconcile in Xero
- Match incoming subscription payments to the corresponding recurring bill
- Clear any unreconciled payments to avoid accounting issues
- Review reconciliation regularly to ensure accuracy
Regular payment reconciliation helps avoid revenue leaks from unpaid subscriber bills.
Automating Subscription Reminders and Notifications in Xero
Xero can automatically notify about approaching subscription renewals/payments:
- Navigate to Settings > General Settings
- Under Organisation Settings, enable payment reminders
- Set the advance notice period for payment reminders
- Customers will automatically be notified via their preferred contact method
Automated reminders reduce subscriber churn from missed payments.
Overall, properly establishing, organizing, reconciling, and automating subscriptions within Xero ensures recurring revenue streams are accurately tracked and new/existing subscribers are retained through consistent billing and payment.
Optimizing Subscription Management with Chargebee + Xero Integration
Exploring the Chargebee and Xero Integration for Subscription Efficiency
The Chargebee and Xero integration connects Chargebee's subscription management and billing capabilities directly into Xero's accounting and financial reporting. This enables businesses to automatically track and manage complex recurring revenue streams from within Xero in an efficient, automated manner.
Key benefits of the Chargebee + Xero integration include:
- Automated syncing of subscription and customer data from Chargebee into Xero in real-time. This keeps the accounting picture up-to-date.
- Accurate revenue recognition in Xero based on subscription events and metrics tracked in Chargebee. This simplifies revenue reporting for complex recurring models.
- Reconciliation of payment and transaction data between the two systems. This eliminates manual reconciliation efforts.
- Consolidated view within Xero of subscription performance metrics from Chargebee like MRR, churn rate, ARR, etc.
By leveraging Chargebee's subscription management and billing engine alongside Xero's accounting and financials, businesses can optimize efficiency of recurring revenue operations, eliminate manual processes, and maintain accuracy across systems.
Streamlining Subscription Renewals and Revenue Recovery
Chargebee automates many of the complex recurring revenue processes related to renewals, failed payments, and revenue recovery. Key capabilities include:
- Automatic dunning of failed payments with customizable email templates to simplify renewal conversion.
- Flexible hierarchy for applying different dunning strategies across customer segments.
- Failed payment recovery to enable automatic retry of declined/failed payments on subscriptions.
- Configurable subscription cancellation workflows based on criteria like non-payment, tenure, etc.
These features work to maximize recurring revenue by streamlining renewals, minimizing involuntary churn from payment failures, and enabling automated revenue recovery processes.
By leveraging Chargebee's automatic dunning and failed payment recovery processes, accounting teams can reduce time spent managing renewals and overdue invoices manually. Instead, these workflows are systematized to run automatically in the background - saving time while optimizing renewal rates.
Accurate Revenue Recognition with Chargebee in Xero
Chargebee captures intricate details on subscription events, billing cycles, metered usage, add-ons purchased, etc. This data can be used to accurately recognize revenue in Xero based on subscription activity.
Key revenue recognition capabilities with Chargebee + Xero include:
- Automated revenue scheduling in Xero based on subscription renewals, plan changes, upgrades/downgrades, cancellations etc. tracked in Chargebee.
- Flexible revenue allocation rules in Chargebee, which can defer or allocate revenue based on IFRS 15 standards.
- Metered billing and usage-based revenue recognition based on actual usage data from Chargebee.
These features simplify the complex task of revenue recognition for recurring revenue streams by automatically reflecting subscription activity from Chargebee into revenue recognition within Xero. This eliminates the need for manual journal entries or adjustments by accounting teams.
By leveraging Chargebee's revenue recognition engine, businesses can maintain accuracy of their financial reporting in Xero while scaling complex, non-linear recurring revenue streams.
Enhancing Accounting Workflows with Chargebee + Xero
The Chargebee and Xero integration alleviates several pain points for accounting teams managing recurring revenue:
- Automated syncing eliminates manual reconciliation of transactions, invoices, credits between the two systems.
- Configurable dunning for customized subscription renewal workflows to reduce involuntary churn.
- Failed payment recovery minimizes revenue leakage from involuntary churn due to declined payments.
- Accurate revenue recognition removes need for manual revenue adjustments based on subscription activity in Chargebee.
By connecting these systems, accounting teams can rely on automated syncing of transactions, invoices, customer data, and revenue recognition details between Chargebee and Xero. This eliminates hours spent on manual reconciliation while improving accuracy of financial reporting.
Teams are then freed to focus on more strategic initiatives - leveraging insights from Chargebee and Xero to optimize recurring revenue operations, minimize involuntary churn, and drive growth.
Conclusion: Mastering Subscription Management in Xero
Managing subscriptions and recurring revenue in Xero can streamline accounting processes and provide valuable insights into cash flow. Here are some best practices to master subscription management:
Simplify Tracking
- Set up separate ledger accounts for each subscription service or product. This allows you to easily track associated expenses and revenue.
- Use the repeating invoice feature to automatically generate invoices for subscription-based products and services. This reduces administrative tasks.
Enhance Reporting
- Run reports on subscription-related ledger accounts to analyze associated profits/losses and identify top sources of recurring revenue.
- Use project tracking to trace delivery costs, billable hours, etc. for each subscription offering.
Reconcile Smoothly
- Integrate Xero with payment gateways like Stripe to automatically reconcile incoming subscription payments.
- Leverage integrations with subscription management platforms like Chargebee to automate revenue recognition and dunning.
Effectively organizing subscriptions in Xero provides transparency into the health of recurring revenue streams. Key benefits include simplified tracking of subscription expenses and earnings, data-driven reporting for insights, and smoother payment reconciliations. Following these tips will help master subscription management.
