The crux of this is creating order – an order where supplier invoices (‘bills’in Xerospeak) go into Xero as soon as received, are checked for payment and then allocated to a planned payment schedule.
To make this work, you also need a payment policy – for example, invoices dated in a particular month are paid at the end of the following month. There are always going to be exceptions: suppliers that offer limited payment terms, or want payment on pro forma, bills that, for one reason or another, come in late but need to be paid etc.
If you can get a system like that in place, then you’re a lot nearer to gaining control of your cash flow and being able to plan properly.
Like most good accounting software, Xero is flexible enough to let users figure out processes that work for them. Here’s a suggestion for a supplier invoice/payment process that’s helped some of our clients.
First step – get bills into Xero
As soon as a bill or any of kind of purchase receipt arrives in the business by email, post, on paper, anything – get it into Xero as a bill Awaiting Approval one way or another! If you’re using one of the data extraction tools like ReceiptBank, scan it or send it via email. If you’re still making manual entries – get typing. The thing not to do is leave docs hanging around in your email or on your desk waiting for some kind of approval – submit it to Xero and check it later and before paying) if it’s a credit supplier!
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Next – review and check bills in Awaiting Approval
Go through your Awaiting Approval list in Xero daily, or as often as possible, do any approval/checking needed against purchase orders etc., (if you’re not using Xero’s PO system). When approved for payment, move invoices to ‘Awaiting Payment’
A couple of things – invoices sitting in Awaiting Approval won’t be included in the unpaid invoices in your balance sheet nor in your profit & loss account costs.
Secondly, if you have a very small business, skip the Awaiting Approval stage stage and submit straight to Awaiting Payment – make sure you do your checking before actually paying invoices.
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Finally – use Schedule Payments to organise supplier payments
Use the Schedule of Planned Payments feature in Xero to group approved invoices together to pay on a certain date, the end of the month for example.
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Having picked which bills to pay, use the Schedule of Planned Payments to select a payment date – a separate payment processionals is required and the date and the list of bills can be edited at any point.
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