We really struggled with Xero bank rules. So we dug deeper and unearthed some easy tricks and common mistakes.
Xero Bank Rules
You can either create a rule from scratch or from a transaction in your bank reconciliation.
The structure of Xero bank rules is the same for both money received and money spent. Xero uses these words.
# 1 When money received / spent on the bank statement matches ALL / ANY of the following conditions…
# 2 Set the contact….
# 3 Automatically allocate fixed value line items….
# 4 With the remainder, allocate items in the following ratios…
# 5 Set the reference….
# 6 Target a bank account
# 8 Give the rule a title….
That is the structure of Xero bank rules. And in our view requires far too much manual input.
Any bank rule works on an ‘if…then’ basis . If this then do that. All a Xero bank rule is saying is:
If the description for the bank transaction matches A in bank account B, then do C and call this rule D.
A Setting the Filters
So A is the filter you set to pick the transactions you want to cover by the bank rule.
This is the single most important thing to get right. Because if you pick the wrong transactions or miss the right transaction, your bank rule is flawed from the start. You set the filters in #1. This is where the action is.
If you make a mistake, your filter will either pick up no, too little or too many transactions. So you will usually realise straight away, whether your filter works or not.
B Defining the Search Area
B is the bank account you want the rule to apply to.
Setting the bank is defining the search area. Picking the right bank sounds straight forward. But it is an easy mistake to make and even easier to overlook.
If you pick the wrong bank account, you search forever in the wrong location. At least that is what we did. You set the bank in # 6.
C is what you want the bank rule to do.
In #2 to #5 you tell the bank rule what to do with the transactions once it finds them. This is what the bank rule is about. This is why you set the bank rule up in the first place.
If you make a mistake here, you usually don’t realise it straight away but rather further down the track. You suddenly find transactions in the wrong account or with the wrong GST code etc.
D Name the Rule
And D is what you call the rule – the hyperlinked title you click when you want to edit the rule.
This is vital even though it sounds unimportant. You need to be able to manage your bank rules. If you don’t, you easily end up with rules overlapping each other with conflicting instructions.
We always name the rule as the keyword we set in A. That way it is easy to see where your rules overlap.
Setting a Rule
So now you got the structure and logic, it is time to actually look at the nitty gritty details of how to set a rule. This is where the mistakes happen. Some mistakes will break the bank rule. Others will just mean that the rule doesn’t exactly do what you wanted it to do.
When money received/spent on the bank statement matches ALL / ANY of the following conditions…
This is the single most important area to get right. This is where you set the filters. This is where you identify the transaction. So if your bank rule doesn’t pick up a transaction it is supposed to pick up or picks up too many or the wrong ones, the error is here.
All v Any
Defaults to ‘All’ and we usually leave it at that. ‘Any’ often gives you too many results.
Number of Filter Lines
The more filter lines you use, the tighter your search. So try to stick to one filter line unless you really need two.
1st Field of Filter Line – Description v Payee v Any text field
This is where the music starts. We used to select ‘description’ as a filter. But we kept getting bank rules that don’t work. So then we realised that ‘any text field’ is the magic wand that gets the bank rule to work. So now we tend to just go for ‘any text field’. Payee works as well.
But amount, reference and analysis code are dangerous on their own. So if you need one of these, you really need a second filter line listing a description or payee.
Make sure this filter field doesn’t by accident change to something else. When this happened to us, we just couldn’t work out why the bank rule wasn’t working. Until we finally realised that description had changed to reference.
2nd Field of Filter Line – Contains v Equals
If you start with a blank rule, this field will default to ‘contains’. That’s good. Leave it at that.
If you create the rule from a transaction, it will default to ‘equals’. That’s bad. Change it to ‘contains’. ‘Equals’ is far too tight. You run the risk of not getting any hits since many transactions include additional details that refer just to that one transaction.
‘Start with’ can work. But you need to be sure that the start is not unique to that transaction.
And avoid ‘is blank’. If a filter line is blank, you probably don’t need that line. Unless you run a really sophisticated filter and know what you are doing.
3rd Field of Filter Line – Keyword
So this is the actual word you filter for. If you create a rule from scratch, keep it short and make sure you pick up a part of the description that doesn’t change.
If you create the rule from a transaction, shorten it to the words that appear in every transaction. So delete any transaction references and similar. Keep the word as short as possible.
But too short doesn’t work either. If you change Parking to Park for example, you probably pick up transactions that have nothing to do with parking, but plenty to do with Parklands, National Park or similar.
The keyword is case sensitive. So if you use ‘Netflix’, it won’t pick up ‘NETFLIX’. Why on earth Xero would do this, is beyond us. But so sometimes you need two bank rules for the same type of payment, just to cover both scenarios.
Set the contact….
The contact will default to ‘an existing or new contact’. Us the default and enter the name of the organisation or person the payment is coming from or going to. Auto-suggest usually comes up but you still need to type something.
You could change it to ‘the Payee from the bank’ and it sounds promising. You might think that the payee then get automatically listed. But most bank transaction don’t feed payee info into Xero, so Xero will then ask you in the bank rec to manually enter a contact name. And that takes a lot of time. So avoid that one.
And for the same reason avoid ‘entered during reconciliation’ unless you absolutely have to. Entering this during reconciliation is a lot of work and defeats the purpose of a bank rule.
Automatically allocate fixed value line items….
A bank transaction is usually one accounting transaction. The entire amount gets one description, one account, one tax rate. And in that case you don’t need # 3.
But if you have a bank transaction that consists of two or more accounting transactions, you need to somehow split that amount.
And you do that by either identifying in # 3 a fixed value that is meant to go into one account and allocating the rest in # 4 to go to another account.
Or you set a percentage for each account in # 4. In which case you don’t need #3.
With the remainder, allocate items in the following ratios…
So this line does the heavy lifting. This is the core of what the bank rule is meant to do. Allocate the bank transaction to the right account with the right tax rate.
Description, account and tax rate are straight forward. Percentage defaults to 100% and you leave it at that, unless you need to allocate the amount in two or more different ways.
Set the reference….
If you create the bank rule from a transaction, the fields defaults to ‘by me during bank reconciliation’. But avoid this at all costs since it means that you need to manually enter a reference for each individual transaction during the bank reconciliation. You want to avoid manual entries, not increase them.
If you create the bank rule from scratch, the field defaults to ‘from the Reference’.
We usually go with ‘from the Description’.
Target a bank account
Identify the bank account where the transaction is to take place. This is important to get right, otherwise your bank rules fire into the void.
Give the rule a title….
Be as descriptive as possible. It will help you in the long run to manage your bank rules. The best title is your keyword. The exact word you have under #1. This way it is easier to watch your keywords.
So this is all we have for now about Xero bank rules. We wish we could tell you that after all this we never had any problems with Xero bank rules again. But we do.
And lastly a confession. We hate Xero bank rules. Yes, they save time and tedium. But even when you master them, they require far too much manual input to set up and easily miss. There is not even a hint of AI in them. And some of it doesn’t even make sense. Why on earth for example would Xero make the keyword case sensitive?
And you shouldn’t have to read this article. Setting a bank rule should be easy and self explanatory. And most of the time you shouldn’t even need a bank rule, since the system should learn and work things out. That you got this far just shows how this is not working.
May Xero bank rules annoy you less than they annoy us.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 30 January 2019