Set up Customers and suppliers in Xero – Performance Accountancy – MTD

If you want to raise sales invoices in Xero, it is a good idea to set up your customer contacts properly first. Xero Simple has a maximum of 10 sales invoices per month, Xero Ignite has a maximum of 20 per month, and Xero Grow allows unlimited invoices. If you are mainly cash coding, you may not need to set up every contact in advance, but if you know you have regular customers, setting them up properly makes life easier.

For these demonstrations, I am using the desktop version of Xero. To create a customer, go to Contacts and then All Contacts or Customers, or use the plus button and choose Create New Contact.

Start by entering the contact name. For example, you might set up Leeds Lieder Festival as a customer. You can add the name of the person you deal with, such as Harry Smith, and enter the email address used for invoices. You do not have to fill in every piece of business information, but it is useful to enter the billing address because that address will appear on the invoice.

You can use the postcode lookup to find the correct address and then add the contact person’s name in the ‘attention of’ field. If the delivery address is the same as the billing address, you can mark it as the same. For most performers, delivery addresses are not particularly relevant unless you are supplying physical goods, but it is still useful to know where the information sits.

For a customer, you do not usually need to enter their bank details. You are invoicing them, not paying them. Under sales defaults, choose the income account that should normally be used, such as performance income. You can also set the customer’s usual payment terms, for example 14 days after the invoice date. If your organisation is not VAT registered, the VAT settings can use the organisation defaults.

There is also an option to set a discount or a credit limit. In most cases, I would not set a discount as a default. A credit limit can be useful if someone has unpaid invoices and you want Xero to warn you before more invoices are raised, but many small self-employed performers will not need this.

Xero also has a network key, which allows one Xero organisation to send an invoice directly into another Xero organisation as a draft bill. This can be useful, but it can also confuse people if they do not realise the bill has already arrived as a draft and they enter it again manually. E-invoicing is likely to become more important in future, but for now we are keeping this setup simple.

Once you have entered the relevant details, save and close the contact. That customer is then ready to use when you raise sales invoices.

You can also set up suppliers. For example, you might create Vodafone as a supplier. In that case, you do not need to enter billing details because Vodafone is billing you, not the other way around. You also may not need to enter bank details if the bill is paid by direct debit.

For suppliers, the important section is the purchase defaults. For Vodafone, you might set the purchase account to telephone and internet. You can also set the usual bill due date, such as 21 days after the bill date, and leave the VAT settings to follow the organisation settings if you are not VAT registered.

That is the basic process for setting up both customers and suppliers in Xero. Customers are mainly about raising invoices and recording income correctly. Suppliers are mainly about coding purchase bills and expenses consistently.