Here is how Xero bank rules works.
Xero Bank Rules
Xero bank rules are a powerful tool if you know how to use them. If you don’t, you just fire into the dark.
The structure of Xero bank rules is the same for both money received and money spent. This is the structure:
 When money received / spent ..matches all / any of the following conditions, then:
 Set the contact….
 Automatically allocate fixed value line items….
 With the remainder, allocate items in the following ratios…
 Set the reference….
 Target a bank account
And call this rule:
 Give the rule a title….
That is the structure of Xero bank rules.
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  in bank account , then do [2 to 5] and call the rule .
So  is your filter,  your search area,  to  your call to action and  is the title for this bank rule.
You set the filter in . The filter will decide which transactions your bank rule will pick. This is the single most important thing to get right. If you make a mistake, your filter will either pick up no, too little or too many transactions.
The good thing is that you usually realise straight away whether your filter is working or not. If the filter doesn’t pick up the transaction it is supposed to pick up, review the bank rule, fix the error and apply it again. Do this until you fixed the problem. This is really important.
In  you choose 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. If you pick the wrong bank account, your filter won’t be able to find the transaction.
In  to  you tell the bank rule what to do with the transactions it finds. If you make a mistake here, you usually don’t realise it straight away. You just start finding transactions in the wrong account or with the wrong GST code.
And in  you give the bank rule a title – the hyperlinked title you click when you want to edit the rule. This step feels trivial but is vital to effectively manage your bank rules.
Give the bank rule a title that is in line with the strategy you used for that particular bank rule. So either name the rule after the keyword, payee or account you target.
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’ but we usually change it to ‘Any’ since we cover several keywords in one bank rule.
Number of Filter Lines
We usually do one bank rule per account. So we list the keywords for all the transactions that feed into that one bank account.
1st Field of Filter Line – Description v Payee v Any text field
This is where the music starts. We used to select ‘description’ or ‘payee’ 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’.
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.
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. Pick up a part of the text that doesn’t change, so use the words that appear in every transaction. Delete any transaction references and similar. Keep the word as short as possible.
Set the contact….
This one is tricky. It defaults to ‘an existing or new contact’, but this only works if you create one bank rule per payee. Unless you make the contact something generic like Motor Vehicle Expenses.
‘The Payee from the bank’ sounds promising. But if a bank transaction doesn’t feed payee info into Xero, you are back to a manual entry for every transaction.
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….
Avoid ”by me during bank reconciliation’ 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.
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. We usually chose ‘any bank account’.
Give the rule a title….
Be as descriptive as possible. It will help you in the long run to manage your bank rules. We use the keyword if there is just one or otherwise the account name that this bank rule feeds into.
Xero Bank Rule Tips
# 1 Check the Rule
If you have a bank transaction that a bank rule should have picked up, but didn’t, go back to the bank rule straight away and fix the issue.
# 2 No Double Up
Never have two bank rules for the same transaction. Go back and fix the first and delete the second. If the first one works – and it should – then you don’t need the second one.
You can either create a rule from scratch or from a transaction in your bank reconciliation.
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 16 June 2019