What Is Accounts Receivable in Xero?

Accounts receivable in Xero is the money customers owe for goods or services already delivered and invoiced. An approved sales invoice normally creates revenue or another designated credit and a debit to accounts receivable. Customer payment clears the invoice and reduces the receivable when it is correctly matched and reconciled.

Xero provides invoicing, customer balances, aging reports, reminders, payment connections, and bank reconciliation. These features organize the process, but accurate receivables still depend on valid customer records, approved invoices, correct dates and tax treatment, disciplined collections, and a reconciled ledger.

Receivable lifecycle

1. Confirm the customer, contract, price, delivery, payment terms, tax treatment, and approval.
2. Create and approve the sales invoice in the correct entity and period.
3. Send the invoice with complete remittance instructions and supporting detail.
4. Monitor current and overdue balances through aging reports.
5. Record and match customer payments to the correct invoices.
6. Process supported credit notes, refunds, write-offs, and disputes.
7. Reconcile the receivable control account and review collectibility at month-end.

Draft, awaiting approval, and approved invoices

Status matters. A draft may be incomplete and may not have the same ledger effect as an approved invoice. An invoice awaiting approval should not be treated as an authorized customer claim until the designated reviewer confirms it. Approved invoices become part of the accounting and collection workflow.

Limit who can approve, void, or alter invoices. Preserve the contract, order, time record, delivery evidence, price calculation, and tax support. Backdating an invoice to improve an earlier period can misstate revenue, receivables, tax, and management results.

Aging reports

An aged receivables report groups unpaid invoices by age. Common buckets are current, 1 to 30, 31 to 60, 61 to 90, and more than 90 days overdue. Use the report as an action list, not merely a month-end attachment.

Review aging by invoice and customer. One large disputed invoice requires a different response from several forgotten small invoices. Record contact attempts, dispute reasons, promised payment dates, responsible owner, and the next action.

Matching customer payments

Match a bank receipt to the existing customer payment or invoice rather than creating new income. If one payment covers several invoices, allocate it with remittance detail. If a customer pays less than billed, determine whether the difference is a discount, withholding, fee, dispute, short payment, or error before clearing the invoice.

Unidentified receipts may belong in a controlled suspense or customer-deposit account while researched. They should not remain indefinitely and should not be forced against an arbitrary invoice to make reconciliation easier.

Credit notes, refunds, and write-offs

A credit note should identify the invoice, approved reason, amount, tax effect, and authorizer. A refund settles an amount owed back to the customer and must be connected to the credit or overpayment. A write-off recognizes that a valid receivable is not expected to be collected under the approved accounting and tax policy.

These events are different. Using a credit note to hide a pricing error or a write-off to eliminate an unresolved payment can distort revenue, tax, collections performance, and bad-debt analysis.

Receivable reconciliation

At month-end, the total aged receivables report should agree to the accounts-receivable control balance for the same date. Investigate draft or unapproved documents, payments posted directly to the control account, dated differences, deleted invoices, currency effects, manual journals, and contact merges.

Also reconcile customer statements and large balances to source documents. An aging report can agree to the ledger while still containing duplicate invoices, wrong customers, or unsupported balances.

Collections controls

• Set payment terms and credit limits before extending credit.
• Invoice promptly after the agreed delivery milestone.
• Use consistent reminder timing and professional language.
• Assign every overdue balance to an owner.
• Separate disputed amounts from simple late payment.
• Escalate credit holds, payment plans, legal collection, and write-offs under policy.
• Protect customer and payment data with role-based access.

Useful performance measures

Track total receivables, overdue amount, aging mix, collection effectiveness, days sales outstanding, write-offs, disputes, and customer concentration. Define every measure. DSO based on annual revenue is not directly comparable with a rolling monthly calculation, and a lower DSO is not healthy if it results from unrecorded invoices.

Analyze changes by customer, service, salesperson, and invoice type. A growing oldest bucket may indicate weak follow-up, customer distress, billing defects, or misapplied payments.

Month-end checklist

1. Approve all valid invoices and credit notes through the cutoff date.

2. Post and match receipts, refunds, merchant activity, and bank transfers.

3. Reconcile the aged receivables report to the control account.

4. Review negative balances, old credits, unapplied cash, and duplicate contacts.

5. Confirm disputes, promises, credit holds, and subsequent receipts.

6. Assess collectibility and record approved allowance or write-off entries.

7. Lock the period according to policy after reviewer signoff.

For the broader process, see the accounts receivable guide. Businesses that want recurring invoicing and collections support can review accounts receivable services.