What is a supplier coding rule?
A coding rule pairs a supplier, or a pattern on the bill, with an account in the chart of accounts, a tax rate and sometimes a tracking category. Ledgers store these as defaults on the contact, the inventory item or the account. Xero applies supplier defaults when it creates a bill, and for bills emailed into Xero with no supplier or organisation defaults, it predicts account codes from earlier bills from the same supplier. Automation tools can add their own rules on top. A rule saves time only when the person reviewing the bill can see where each suggestion came from.
Which suppliers suit a fixed rule?
Fixed rules suit suppliers whose bills always describe the same kind of purchase: a phone plan, rent, a software subscription or a cleaning contract. They suit poorly for suppliers who sell many kinds of goods, such as a hardware chain, an office supplier or an online marketplace, where one bill can hold consumables, equipment and items for private use. Sort each client's suppliers by the number of bills over the past year, then place each one in a group. The few suppliers that send most of the bills are where rules save the most keying.
- Fixed rule: same account, same tax rate and same tracking on every bill.
- Rule with review: the usual account is suggested and a person confirms it before approval.
- Always manual: mixed purchases, capital items, private use or a new supplier.
How does Xero choose the account and tax rate?
Xero Central sets out the order. For tax rates on most transaction types, Xero uses the contact's default tax rate first, then the inventory item's default if an item is on the line, then the default tax rate of the account code. For accounts, the inventory item's default account comes first and the contact's default account second. For bills emailed in, Xero says supplier defaults override organisation settings, and details it reads from the bill can override supplier defaults. When a rule produces an odd result, check each of these layers before changing anything in an automation tool.
MYOB and QuickBooks Online also let you store defaults against suppliers and accounts. Check their help pages for the order they apply, and write down which layer wins before adding rules from another tool on top.
Which tax rates need a person to decide?
In Xero's Australian basic tax rates, a bill line can carry GST on Expenses, GST Free Expenses, BAS Excluded or GST on Imports, and the advanced set adds rates such as GST on Capital and Input Taxed. Xero notes that GST Free lines are included in the activity statement and BAS Excluded lines are not. A supplier default that is right for most bills can still be wrong for one line. Send to a person any bill that mixes taxable and GST-free items, shows no GST from a supplier that usually charges it, lacks the supplier's ABN or includes an asset purchase.
- Bills with taxable and GST-free items need a separate line for each tax rate.
- The ATO's tax invoice rules require the seller's ABN, and the buyer's identity or ABN on sales of $1,000 or more.
- Capital purchases and private use are decisions for the accountant.
- The final GST treatment stays with the registered agent responsible for the BAS.
How do you test coding rules before relying on them?
Take three months of approved bills from one client file and run the rules against them without posting anything. Compare each suggested account, tax rate and tracking category with what a person actually approved. Count the disagreements for each supplier separately, because one supplier with a bad default can hide inside a good overall average. Fix that supplier's default, or move the supplier to always manual, then run the same bills again. Keep the test bills so the next rule change can be checked against them.
Who should be able to change a rule?
A coding rule changes every future bill for that supplier, so treat a change to it like a change to the chart of accounts. Name who may add or edit rules in each client file, record the reason and the date, and note which bills were coded under the old rule. Review the rules when a client changes its chart of accounts, adds tracking categories, changes what it buys from a supplier or moves to a different ledger. Set a regular review point as well, such as each BAS period, so older rules are checked against current bills.