Xero reconciliation is the process Pinch goes through each time we deposit funds to your business bank account. The process actually starts before that, so this guide will start at the beginning when you first link Pinch to your Xero account.
Step 1 - Pinch account creation
When you connect your Pinch account to Xero we automatically create a new ledger account called the "Pinch Payments Clearing Account". You can see an example of the account created in the capture below. Note that it is important you do not change the code. Feel free to rename it or change the description but the code must remain as is.
Step 2 - Payment taken
When Pinch processes a payment, we find the invoice in Xero and set it as paid allocating the payment to the clearing account created in step 1. We do this so we can track everything we have collected on behalf of your business but not yet settled. It's also a good indication for you of the funds that are on their way. Below you can see an invoice payment set as paid by Pinch.
Notice that the chart of account is the "Pinch Payments Clearance Account" and that the reference is the same as the ID you find in the Pinch portal.
Step 3 - Settlement
Here's where things get interesting. When we settle funds to you we need to do the following:
- Create a bill for the fees you are paying Pinch and set the bill as fully paid
- If you surcharge our fees, raise a surcharge invoice against the client who paid the surcharge and set the invoice as fully paid
- Create an account transaction for the amount we deposited into your bank account so Xero goes green with the reconcile button
To break things down a bit further for the accountants and bookkeepers;
Upon first settlement we automatically create another ledger account called the "Pinch Payments Fees Account". This tracks all of the fees paid to Pinch since you connected the account. You can see details of the account below. As with the clearing account please do not change the code.
We then create a bill for the fees paid to Pinch. Note the fees paid to Pinch are deducted from the amount we deposit into your account automatically. Here is an example bill from Pinch:
Note that we create a contact called Pinch Payments and that the line items are allocated to the Pinch Payments Fees account we automatically created. Note also that the bill is paid. The payment for the bill is shown below:
Note here that the payment is associated with the clearing account we created. This is so when we create the account transaction for the amount we deposit into your bank the clearing account will balance out to $0 again. You can see the clearing account ledger for comprehensive details on how Pinch works.
The final part is to create an account transaction to reconcile Xero with the bank. You can see an example account transaction below.
The amount shown on the account transaction will always match the amount we deposited into your bank account regardless of whether we processed 1 payment or 1,000 payments and is a real time saver for businesses processing lots of payments each month. Also note the reference above, that will match a settlement in the Pinch portal under the settlements tab and from there you can view details of the settlement including every invoice and the breakdown of fees for the invoices.
If you'd like to talk to us more about the reconciliation process please email email@example.com