Handling global business transactions across multiple currencies can be complex and error-prone.
Luckily, Xero offers robust multi-currency features that make managing international payments seamless and efficient.
In this post, you'll learn how to set up and use Xero's multi-currency tools to send invoices, pay foreign bills, record currency gains/losses, and more with ease.
Introduction to Multi-Currency in Xero
Xero's multi-currency feature allows businesses to record transactions in different currencies and have Xero automatically convert them into the home currency based on daily exchange rates. This eliminates the manual work of currency conversion and provides up-to-date foreign currency translations.
Some key capabilities unlocked with Xero's multi-currency include:
- Recording transactions like invoices and bills in foreign currencies
- Automatic conversion into home currency using daily exchange rates
- Reporting on foreign currency gains and losses
- Supporting bank accounts in foreign currencies
- Issuing quotes and estimates in foreign currencies
Enabling multi-currency in Xero requires understanding the subscription options to choose the right plan. It also helps to know how Xero handles currency conversions behind the scenes when transactions are entered.
Exploring Xero Multi-Currency Subscription Options
Xero offers multi-currency capabilities on its Early, Growing, and Established subscription plans. The specific details differ across the pricing tiers:
- Early: Supports 2 currencies
- Growing: Supports up to 3 currencies
- Established: Supports unlimited currencies
So if your business only occasionally deals in a secondary currency, the Early plan may suffice. But if you transact more widely across global markets, you'll want the Established plan for full multi-currency support.
When evaluating the subscription plan, also consider if you need features like bank feeds and automated currency rate updates, which are only included on higher tiers.
How Multi-Currency Transactions Are Handled in Xero
When you record an invoice, bill, or other transaction in a foreign currency in Xero, here is what happens behind the scenes:
- Xero translates the transaction amount into the home currency automatically using the appropriate daily exchange rate
- The foreign currency gain or loss resulting from rate fluctuations is tracked over time
- On financial reports, individual transactions show the original currency entered while totals appear in home currency
So even though invoices display the foreign currency amount, Xero handles the conversion math automatically when reconciling transactions so you don't have to.
Key Benefits of Enabling Multiple Currencies
Here are some of the major benefits unlocked by activating multi-currency in Xero:
- No manual currency conversion - Xero handles this automatically using daily exchange rates
- Understand foreign currency exposure - Reporting tracks gains/losses over time
- Present professional invoices - Send bills and invoices in client's preferred currency
- Simplify global commerce - Remove headaches of cross-border transactions
In summary, multi-currency eliminates the manual work associated with foreign currency transactions so you can focus on growing your global business.
How do I use multiple currencies in Xero?
To start using multiple currencies in Xero, you need to have a pricing plan that includes the multicurrency feature.
Here are the key steps to set up and use multiple currencies in Xero:
Add Foreign Currencies
- Go to the Settings menu and click on Currencies
- Click "Add currency" and select the foreign currencies you want to add
- Set up currency conversion sources to automatically update exchange rates
Assign Currencies
- Assign specific currencies to customers and vendors based on where they are located
- This ensures transactions are recorded in the appropriate currency
Enter Foreign Currency Transactions
- When entering bills, invoices, etc. specify the foreign currency used
- Xero will automatically calculate the conversion to your home currency
Reporting
- Run reports in different currencies to see financials from various perspectives
- The Foreign Currency Gains & Losses report shows gains/losses from conversion
The key benefits of using multiple currencies in Xero include: simplified global business, automatic conversions, and better visibility into foreign currency exposure. Reach out to Xero support if you need any help setting up multiple currencies.
How do I record foreign currency transactions in Xero?
Recording foreign currency transactions in Xero is straightforward with its multi-currency features. Here are the key steps:
Confirm Currency Settings
First, check that you have set up multiple currencies properly in Xero. This includes:
- Enabling the currencies you use
- Setting base currency exchange rates to update automatically or manually
- Adding bank accounts in relevant currencies
Enter Transaction Details
When entering any transaction (invoice, bill, etc), be sure to:
- Select the appropriate foreign currency
- Enter the transaction amount in that currency
- Use the current exchange rate provided by Xero
Xero will calculate and store both the original foreign currency amount, as well as the base currency equivalent.
Review Foreign Currency Gains & Losses
Use Xero's Foreign Currency Gains & Losses report to see unrealized gains/losses due to exchange rate fluctuations. This helps you track exposure.
Get Notified of Large Gains/Losses
You can set up automatic alerts in Xero to be notified if foreign currency gains or losses exceed a threshold, ensuring you stay on top of significant impacts.
Following these best practices will enable you to seamlessly record and manage foreign currency transactions in Xero without hassle. Let me know if you have any other questions!
How do I process foreign currency in Xero?
Processing foreign currency transactions in Xero can seem daunting, but it's actually quite straightforward once you understand the basic concepts. Here's a step-by-step guide to help you get started:
Create a Foreign Currency Transaction
- When entering a new invoice, bill, or other transaction, select the foreign currency you want to use from the currency dropdown menu. Xero has over 160 currencies pre-loaded.
- If the currency rate is not showing, enter the exchange rate manually. You can source exchange rates from websites like XE.com or your bank.
- If applicable, adjust the unit price and tax rate on individual lines to match the foreign currency. Xero will calculate everything using the exchange rate you provide.
Additional Tips
- Set up multiple currencies under Organisation Settings so they are available on all transactions.
- Connect a foreign currency bank feed to automatically import exchange rates daily.
- Run the Foreign Currency Gains & Losses report to see unrealized gains/losses on foreign balances.
- Use the Multi-Currency feature for a complete view of cashflow by currency.
Processing transactions in foreign currencies is straightforward in Xero. By entering exchange rates manually or connecting live feeds, you can seamlessly manage financials across global markets. The key is ensuring transactions are properly input with appropriate foreign currency unit prices, taxes, and exchange rates.
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How do you account for foreign currency transactions?
When a business conducts transactions in a foreign currency, proper accounting of those transactions is essential. Here are some key things to know:
Record Transactions at the Exchange Rate on the Date of Transaction
When a foreign currency transaction occurs, it should initially be recorded at the exchange rate in effect on that date. For example, if you invoice a customer in Euros on June 1st, take the Euro to USD exchange rate on June 1st and translate the invoice amount into USD using that rate. This allows you to record the transaction into your accounting system (which is likely maintained in your home currency).
Recognize Gains and Losses on Each Future Payment
On any future date when a payment related to that foreign currency transaction is made, record the payment by translating the foreign currency amount paid into your home currency using the exchange rate on the payment date. If the exchange rate differs from the initial transaction date, it will result in a foreign exchange gain or loss that should be recognized.
For example, if you receive payment for that Euro invoice on July 1st, take the Euro to USD exchange rate on July 1st and translate the payment amount into USD using the July 1st exchange rate. Compare that to the initial USD invoice value and book any difference to a foreign currency gain/loss account.
Run Foreign Currency Adjustment Reports
Most accounting systems have reporting features that allow you to run foreign currency adjustment reports, which outline all recognized gains and losses. These reports are essential to ensure proper accounting and reporting of foreign currency transaction impacts.
Properly recording exchange rate differences and running adjustment reports allows you to accurately reflect foreign currency effects in financial statements and regulatory filings. Consult an accounting professional to implement appropriate foreign currency transaction procedures for your business.
How to Set Up Multi-Currency in Xero
Enabling multiple currencies in Xero allows you to manage transactions in different currencies seamlessly within the platform. Here are the key steps to set up multi-currency:
Adding Xero Multi-Currency Bank Accounts
- Navigate to the Bank Accounts section in Xero and click "Connect a bank account"
- Search and select your foreign currency bank account
- Xero will automatically pull exchange rates and import transactions daily
Selecting an Exchange Rate Source in Xero
- Go to Settings > General Settings > Financial Settings
- Under "Exchange Rates", choose from options like XE.com, Bloomberg, or import CSV files
- Select a source that provides up-to-date, accurate rates for your required currencies
Assigning a Currency to Customer or Vendor Contacts
- Open the contact record for a customer or vendor
- Click Edit Contact Details > Display Currency
- Choose the appropriate currency based on the contact's geographical location
Customizing Currency Format and Exchange Rate Tables
- Navigate to Settings > General Settings > Financial Settings
- Set preferences for currency symbol placement, decimal separators, thousand separators
- Create custom exchange rate tables for specific date ranges if needed
Enabling multiple currencies ensures you can seamlessly manage international transactions within Xero. Connect relevant bank accounts, choose an exchange rate source, assign customer currencies, and customize formatting.
Managing Global Transactions with Xero's Multi-Currency Features
Xero's multi-currency features allow businesses to manage transactions in different currencies seamlessly within the platform. This provides significant benefits when dealing with international clients, suppliers, and business operations.
Invoicing Foreign Customers with Custom Bills
When invoicing foreign customers, it is important to bill them in their own currency to avoid confusion and simplify payment. Here are some tips:
- Enable multiple currencies in Xero and assign specific currencies to foreign customer contacts. This ensures invoices are automatically created in the right currency.
- Set up foreign currency bank accounts in Xero to easily receive payments from international clients.
- Use Xero's auto currency conversion when entering foreign transactions to reduce errors. Rates stay up-to-date.
- Customize invoice templates with currency symbols, formatting, and translations for a professional billing experience.
Invoicing in the native currency results in faster payments and happier international customers.
Paying Foreign Supplier Bills in Their Currency
Paying suppliers in their own currency is beneficial for maintaining positive business relationships and keeping payment reconciliations simple.
- Assign vendor currencies to foreign supplier contacts for accurate billing.
- Enter bills in the original currency received using Xero's auto rate conversions to reduce errors.
- Set reminders for large foreign payments to avoid late fees or cash flow issues.
- Use foreign currency bank accounts to easily pay international bills.
By paying foreign suppliers in their native currencies, businesses streamline the payment process.
Handling Foreign Currency Feeds and Bank Transactions
Linking foreign currency bank accounts to Xero enables seamless tracking of deposits, transfers, and other transactions.
- Set up bank feeds for automatic imports of foreign transactions into Xero.
- Review auto-reconciled transactions to catch any feed issues quickly.
- Manually enter any missing foreign transactions not fed directly.
- Run foreign currency deposit and transfer reports for cash flow monitoring.
With foreign currency bank feeds and streamlined reconciliation, global transaction tracking becomes effortless.
How to Run the Foreign Currency Gains & Losses Report
Monitoring currency fluctuations is important. The foreign currency gains and losses report provides insight into:
- Total gains/losses by currency over custom periods.
- Tracking of top performing and underperforming currencies.
- Estimates of future gain/loss trends.
To run the report:
- Navigate to Reports > Foreign Currency Gains & Losses
- Select date range
- Choose specific currencies to analyze or "all"
- Click update to run report
Reviewing gains and losses by currency enables businesses to make informed decisions and adjustments to account for currency risk.
Advanced Multi-Currency Management in Xero
Managing transactions in multiple currencies can provide useful insights into foreign exchange exposure and performance across different markets. However, it also introduces some additional accounting considerations. This section explores some of the more advanced features in Xero for multi-currency management.
Submitting and Receiving Bids in a Foreign Currency
When submitting or receiving a bid in a foreign currency, it's important to record the exchange rate at that point in time. This allows you to accurately assess the true value of the bid and account for any subsequent currency fluctuations.
Here are some tips for managing bids in foreign currencies:
- When creating a bid in Xero, you can specify the currency. Record the current exchange rate to your base currency for reference.
- For bids received from vendors, add them as draft bills specifying the foreign currency. Note the exchange rate at that date.
- If the bid is successful, when creating the final sales invoice or bill, apply the same exchange rate as the original bid. This avoids recognizing gains/losses due to exchange rate changes during the bidding process.
Understanding Xero Foreign Currency Gains and Losses
As exchange rates fluctuate over time, you may realize foreign currency gains and losses when settling invoices. Xero calculates and records these automatically when the invoice or bill is approved.
The foreign currency gain/loss is the difference between the amount recorded on the original draft invoice/bill and the amount paid/received due to changes in the exchange rate. It is posted to a dedicated accounts receivable account.
Reviewing the Foreign Currency Gains & Losses report allows you to analyze the impact of exchange rate fluctuations on your financial statements over time.
Three Reports that Can Be Displayed in Another Currency
In addition to your base currency, many standard Xero reports can be viewed in other currencies for comparative analysis:
- Aged Receivables: View outstanding customer invoices in foreign currencies.
- Aged Payables: View outstanding vendor bills in foreign currencies.
- Executive Summary: Display summary financial figures converted into foreign currencies.
This allows important insights into cash flow, payables, and overall financial performance specific to foreign operations.
How to Check Base Currency in Xero for Accuracy
As the base currency controls your entire Xero chart of accounts and reporting, it is crucial to ensure it is set correctly when first setting up your organization:
- Navigate to Settings > General Settings.
- Under Organization Details, view and verify the Base Currency.
- If incorrect, contact Xero Support to change the base currency, as this impacts your entire chart of accounts.
Periodically check that transactions are being recorded in the proper base currency for accurate financial reporting. Foreign currency transactions should be converted to your base currency upon approval.
Managing multiple currencies across global business operations brings additional complexity. But with Xero's dedicated foreign currency tools and reporting, organizations can streamline this process for smarter financial decisions.
Conclusion and Key Takeaways
Using multiple currencies in Xero can provide significant benefits for businesses with international suppliers, customers, or operations. By keeping financial records in the appropriate local currencies, Xero automates foreign currency conversions and provides transparency into foreign exchange exposure.
Recapping the Benefits of Using Multiple Currencies in Xero
- Automated reporting: Xero automatically converts transactions into the home currency for reporting purposes. This eliminates manual currency conversions.
- Simplified invoicing: Businesses can send and receive invoices in foreign currencies based on customer or vendor preferences. Xero handles the conversions.
- Foreign exchange visibility: The foreign currency gains and losses report gives insight into how currency fluctuations impact financial performance.
Who Can Benefit Most from Multi-Currency
Businesses that stand to realize major gains from multi-currency support in Xero include:
- Companies with overseas suppliers that transact in foreign currencies. Multi-currency simplifies payments and reconciliation.
- Businesses that export/import goods and need to receive or submit bids in foreign currencies.
- Service providers with international clients who prefer billing in local currency.
In summary, any business with regular foreign currency exposure can eliminate manual processes and gain financial transparency through Xero's automated multi-currency tools.
