How to account for invoice financing in Xero

If you’re a Xero user, you may have found accounting for invoice financing something of an admin burden. However, Satago’s enhanced Xero integration means that when you take out invoice finance with us, you can post the accounting information directly to your Xero account, saving you time.

In this article, we’ll show you how to account for invoice financing within Xero the standard way and using Satago’s enhanced Xero integration feature.

What is invoice financing?

Businesses that invoice their customers can experience cashflow pinch points as they wait for clients to pay. Invoice financing allows businesses to unlock cash from unpaid invoices, ensuring they have enough working capital to keep their business running while waiting to be paid.

When you apply for invoice finance, the lender will advance you a percentage of the value of your invoices (usually between 70-90%), you’ll receive this money in your bank account. Then, when your customer pays their invoice, the lender will collect the amount that was advanced plus their fees and the remaining funds will be transferred to you.

Satago offers two types of invoice finance: Single invoice finance, sometimes known as selective invoice finance. This means you can choose which invoices you want to finance on a flexible basis without being tied into a long-term contract. And Full Invoice Finance — meaning you can fund all your eligible invoices at a competitive rate on a minimum 12-month contract.

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Invoice finance is a useful way for businesses to fund new projects and cover short-term cashflow gaps and Satago’s enhanced integration with Xero makes accounting for invoice finance quick and painless.

How invoice financing is usually accounted in Xero

The standard process for logging invoice finance in Xero manually is as follows:

• Create a new bank account in Xero. You can call this your ‘invoice financing (IF) account’ as it will only be used for this purpose.
• When the lender advances you the cash, put it in this new IF account.
• Log the invoice in Xero as having been 100% paid.
• Log the lender’s fees as having been paid from the IF account. You can do this using the Spend Money feature in Xero.
• When you transfer the cash to your business, log it as a bank transfer from your IF account to your normal bank account.
• Once the invoice is paid by your customer and you receive the full amount in your IF account, you can transfer the remaining funds to your bank account.
• You can reconcile the account transaction against statements from your IF account using Xero’s Mark as Reconciled tool.

How to account for invoice financing in Xero using Satago

When you apply for invoice finance with Satago, the process of accounting the transactions in Xero is much easier. If you prefer, you can still use the manual way, but using the Satago system will save you time.

Here’s how to account for invoice financing in Xero with Satago:

• Set up a liability account in Xero. Set the account type to ‘current liability’.
• Set up an expense sheet account in Xero. Set the account type to ‘expense’.
• When Satago advances the funds to you, we will set up the liability and the bank transaction for you to easily match in Xero.
• When the invoice is paid by the customer, Satago does the reconciliation for you. This means we will mark the invoice as paid, remove the Satago liability, recognise the fees and create the bank transaction for you to match.

Easy!

How to enable Satago’s enhanced Xero integration

You will be prompted to enable the advanced Xero integration feature as soon as your invoice finance application has been approved. Simply select the correct accounts from the dropdown menu.

• Bank account: where you receive payments from Satago.
• Liability account: the account you set up to record how much finance you have received from Satago.
• Expense account: the account you set up to record our fees.

How to apply for invoice finance with Satago

If you’d like to apply for invoice finance with Satago, register securely on our platform and connect your accounting software in a few clicks (Satago connects to 300+ accounting platforms including Xero, Quickbooks, Sage and Freshbooks).

Once connected, the platform will display which invoices are eligible for finance and show you the amount you can advance and the fees. Simply click to apply and, once approved, you will receive a cash advance in your bank account within 24 hours.

If you have any questions, get in touch with our team: hello@satago.com 02080503015