From XU Magazine, 
Issue 16

Bank rules in Xero

The streamlined bank reconciliation process in Xero, with the combination of the bank imports and the auto match function, really does speed up and simplify the whole bank reconciliation process. Indeed, there is something very satisfying about opening up the bank reconciliation page and seeing green and lots of ‘OK’ buttons, as you know you will be able to reconcile items very quickly. Bank rules can speed up bank reconciliations even further but many people are unaware they exist and how easy they are to set up...

When to use Bank Rules

Bank rules should be used for regular spend or receive money transactions, or for bank transfers where there are no invoices to support the amount. For example, parking or train travel. If you have a regular monthly invoice, you should enter that as normal and match it against the payment as part of the bank reconciliation.  In this case, there is no requirement for bank rules.

There are three types of transactions that bank rules can be created for:

  • Spend money transactions
  • Receive money transactions
  • Transfers of money between accounts

All are set up in the same way and all can save you time and help ensure a consistent approach each month to the reconciliations.

So what are the advantages?

The main advantage is time saved – the rules automate the bank reconciliation process even further which saves us time. Another plus is that bank rules also ensure consistency because the same rules are applied each month, so the transactions are always treated in the same way.

The ability to apply the same bank rule across different bank accounts and credit cards eliminates the need to set it up individually for each account. Ensure you select the target accounts when you set the rule up and the same rule will be applied to all of the selected accounts.

Bank rules also help keep Xero tidy. For example, you do not want a new contact created for each petrol station or taxi firm used. Instead, you can create a rule to be applied to all similar transactions, such as ‘petrol’ or ‘taxis’, and this will group them all together.

How to Create Bank Rules

You can create bank rules from the bank account page, from the bank reconciliation itself and also from the cash coding page in the bank statement. In all cases, the setup of the bank rule is identical – you just need to select whether it is a spend money, receive money or transfer of money transaction first.

The create bank rule screen is split into seven sections, with section one specifying the conditions of when the rule should be applied. You must have at least one condition for the bank rule but you can add more if needed.

The first line states that the rule will apply either if ‘all’ or ‘any’ of the conditions apply. This is an important criteria as ‘all’ will mean that the rule is applied if all the conditions are matched, whereas ‘any’ means that the rule is implemented even if only one of the conditions are met, so it is less restrictive.

Next, by selecting  ‘Any text field’ from the first drop-down list, Xero will search the Payee, Description, Reference and Analysis Code fields on the bank statement line and apply the rule if one of the fields meets the condition.

The next drop down has four options as follows:

  • All - the rule is applied if all the conditions entered are met
  • Any - the rule will be applied if any of the conditions are met
  • Contains - the rule suggests statement lines that include the details entered but do not have to be a specific match, so is less restrictive.
  • Equals - the rule is applied if the bank statement lines match exactly

The next section relates to the supplier name and this can be entered during the reconciliation, the payee or a new or existing contact. If you want to group all common items together rather than have a new supplier for each entry, you can create a new contact to group them. For example, you could create a new contact called ‘train travel’.

The third section is where you want to allocate fixed value line items and is commonly left blank.

Section four relates to the allocation of the amount to different nominal codes. Here you must enter a description, account VAT rate and the percentage of the total value to be allocated to that account.

Next, set the reference and then on section six you can set the target bank account that the rule should be applied to.  It then gives you the option to apply it to more than one account. This saves you having to set the rule up for each individual account.

The final step is to give the bank rule a title. That is all that is needed – you have now created your bank rule!

Now, when Xero detects the payment to a supplier covered by one of the bank rules, Xero will apply the rule. All you have to do in the bank reconciliation screen is click ‘Ok’ to confirm and the item is then reconciled.

Order is important

You can set the order that bank rules are applied from on the bank rules screen. This can be found on the bank accounts page. Here you can drag and drop the rules, so specify the order in which they should be applied, with the more restrictive ones first.

Summary

Bank rules are a time saving tool that are well worth setting up. Through taking the time to set up the rules and the conditions at the outset, the bank reconciliation will be much smoother and faster in the future.

Why leave it there?

Straight to your inbox

Subscribe to our newsletter for updates as they happen
We hate spam too. We NEVER sell our mailing list.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.