Xero set up of Products and Services – Performance Accountancy – MTD

In this video, we are going to look at something in Xero that can make your invoicing much quicker and easier: products and services. Products and services allow you to prefill the information for things you commonly sell, or sometimes things that regularly appear on your invoices. For example, you might set up a product or service for a 60-minute piano lesson at £45, or for a particular type of performance income. You could also set up lines for items such as agent commission, so that the wording and account code are already there when you raise an invoice.

The idea is that when you come to create an invoice, you do not have to keep typing the same information from scratch. You can select the item, and Xero will fill in the description, price and account code for you. This can make the invoice much quicker to prepare.

To find products and services in Xero, go into the sales area and select Products and Services. This is where you can add items that you sell, or items that appear regularly in your records.

To create a new item, select New item. In this example, I am going to create a product or service for a 60minute piano lesson. The item code can be something simple, such as “Lesson 60”, and the item name can be “Piano lesson – 60 minutes”. This is not an inventory item, because we are not holding stock. We are simply creating a standard service that can be added to an invoice.

We are not purchasing this item, but we are selling it. The selling price for this example is £45. The sales account should be private teaching income, because that is where income from lessons should be recorded. There is no VAT in this example, because this setup assumes a non-VAT registered business. Once the details are complete, save the item.

You can also set up items that help with agent invoices. Agent commission can be a regular line on a sales invoice where an agent has deducted their commission before paying you. Although it feels like a cost, it appears on the sales invoice as a deduction, so it needs to be set up in a way that can be selected when preparing the invoice.

For agent commission, you can create an item called “Agent commission”. You do not necessarily need to enter a fixed cost price, because the amount will depend on the invoice or agent statement. The important part is that the item is linked to the correct account code, such as agent commission or direct expenses, depending on how your chart of accounts has been set up.

Once your products and services have been created, they can be used when raising invoices. Go back to Sales, then Invoices, and create a new invoice. For example, if you are invoicing a student, select the customer and enter the invoice date. Then, in the item column, choose the 60-minute piano lesson item. Xero will fill in the description, price and account code automatically. You can then approve the invoice.

If you are raising an invoice involving an agent, the same principle applies. You can select the customer, such as your agent or management company, enter the invoice date, and add the relevant performance fee. If you have not already set up a product or service for performance fees, you can enter it manually or create one later. Where there is agent commission, you can add the agent commission item as another line on the invoice.

The amount should be entered as a negative figure because it has been deducted from the gross fee. In the example in the video, the agent commission is calculated at 15% plus VAT. For a £1,200 fee, 15% commission is £180, and with VAT added at 20%, the total deduction is £216. That brings the net amount received down to £984.

Using products and services means the description and account code are filled in automatically. This reduces the chance of coding things incorrectly and makes the invoice faster to prepare. It is particularly useful where you regularly invoice for the same type of teaching, performance work, or recurring deductions such as agent commission.

The important point is that agent commission appears on the sales invoice as a deduction from your gross income, so it should be set up as something you can select on the sales side of the invoice. That may feel a little odd at first, because agent commission is an expense, but in Xero, it is being entered as part of the sales invoice calculation. Once these items are set up properly, raising invoices should become much quicker. Instead of typing the same lines repeatedly, you can select the item, check the amount, and approve the invoice.