FreshBooks vs. Xero: How They Compare in 2022

Are you considering using FreshBooks or Xero for your business finances? While both programs have pros and cons, it can be tough to decide which is the right choice for your company. In this post, we'll look at how FreshBooks and Xero compare in 2022. By knowing what to expect from each program, you can decide which one is best for your business.

If you're a small business owner, you're probably considering using accounting software to help manage your finances. Two of the most popular options are FreshBooks and Xero. But which one is right for you?

Which cloud-based accounting software should you choose for your business: FreshBooks or Xero? While they share some similarities, there are also some key differences that you should be aware of before making your decision.

What kind of software do you use to manage your business finances? If you're not sure, don't worry, you're not alone. FreshBooks and Xero are two popular options, but it can be hard to decide which one is best for your business.

While both have pros and cons, which one is right for you depends on your specific needs. In this post, we'll look at how FreshBooks and Xero compare in 2022. We'll also discuss some of the important features to consider when making your decision.

We'll look at the features of each software and how they compare in terms of price and ease of use. By the end of this post, you should better understand which software is best for you.

Let's get started!

Xero vs. FreshBooks: Vendor Overview

In 2006, the current CEO of Xero, Rod Drury, along with his accountant, established the company in New Zealand. In 2007, the company began trading publicly on the New Zealand Exchange, and its current valuation is approximately $62 million.

Over 540,000 people around the world use Xero, and the company has been honoured with a number of honours by publications such as Accounting Today, Marketers that Matter, and CPA Practice Advisor, amongst others.

FreshBooks was established in 2003, making it a little more seasoned business, although this does not necessarily equate to a larger market share for the company. FreshBooks claims to have 5 million users, which are most likely divided into a customer base that is comparable to Xero's. The company has not yet made its initial public offering (IPO) (initial public offering).

Xero Industries Served: Retail, e-commerce, high-tech, nonprofit, legal, hospitality, coffee shops, marketing/advertising.

FreshBooks Industries Served: Contracting, legal, consulting, personal services, creative agencies.

FreshBooks vs. Xero: What You Must Understand

In order to make an accurate comparison between FreshBooks and Xero, you will first need to have a thorough understanding of the capabilities of each of these company accounting software packages, as well as the fees associated with using them.

However, as we discussed before, FreshBooks and Xero share a number of fundamental commonalities. Because these accounting systems are web-based, you may use them from any location as long as you have access to the internet. In addition, both FreshBooks and Xero provide customers with the option to select from three distinct pricing tiers, each of which includes an expanding set of features as the price point rises.

In addition, both FreshBooks and Xero enable you to manage fundamental accounting responsibilities, such as creating invoices, tracking expenses, and generating reports, and they are all relatively simple to use.

What are the key differences between FreshBooks and Xero, then? Let's go into more detail to address that issue, and let's start with the particulars of the FreshBooks programme.

When to Use FreshBooks

The best aspects of FreshBooks are its time management, invoicing, and accounting capabilities. These tools make it easy to track billable hours, to bill clients by utilising the invoice generator, and to track your bills until they are paid in full.

FreshBooks won a spot in our rundown of the best accounting software for small businesses thanks to its impressive collection of billing options. The tools that are included with FreshBooks are an excellent collection of resources that are useful for most service-based businesses, particularly those that charge by the hour.

Because the user interface of FreshBooks is so straightforward, it is an excellent choice for people who have limited to no prior expertise in the accounting field.

FreshBooks Is Better For

• Customer service: The customer service offered by FreshBooks is commendable because it is simpler for consumers to get in touch with the support team and request assistance than it is with Xero.

You may get a quick answer to a frequent problem with FreshBooks by giving them a call, letting them call you, using a chatbot, or accessing their self-help information. Therefore, if you wish to compromise some accounting capabilities, we suggest that you use FreshBooks because it has superior customer support.

• Mobile app usage: One of the advantages that FreshBooks has over Xero is the presence of a mobile app. You can keep track of your miles using FreshBooks, as well as produce invoices and connect directly with customers through the software itself. The mobile app that Xero offers does not include these functions; hence, we strongly advise users who are frequently away from home to switch to FreshBooks.

• Individuals with little accounting experience: In spite of the fact that FreshBooks is categorised as "accounting" software, you won't have any trouble understanding how it operates because it was created with users who aren't familiar with accounting in mind. You have the option of hiring an accountant to maintain the books on your behalf if you do not wish to handle this responsibility yourself.

• Recurring billings: Users of FreshBooks are given the ability to set up automated recurring billings for their customers. It is the greatest recurring billing software that we offer, and it allows service providers to automatically bill their consumers instead of doing so manually each billing cycle.

• Freelancers offer personal and professional services: Because it incorporates time tracking capabilities that allow users to simply keep track of billable hours and add them to invoices, FreshBooks provides freelancers with a practical accounting solution that is easy to use.

When to Use Xero

Because FreshBooks does not have a good inventory accounting system, Xero is the greatest overall alternative that we have found to QuickBooks.

Businesses who rely on the services of third-party software providers will find that working with Xero is simple thanks to the numerous connectivity tools that the platform offers, such as PayPal and Square. It doesn't matter whether it's a third-party invoicing or project management software; Xero's ability to interact with many different third-party apps gives it a level of flexibility that makes it simple to use in already established organisations.

As a result, it is an option worth considering for well-established small and medium-sized businesses (SMBs) that require fundamental accounting capabilities as well as a comprehensive list of integration features for the purposes of improved teamwork and workflow efficiency.

Xero Is Better For

• Banking: In order for the banking functionality of FreshBooks to function, you will need to link your bank account to the software. You have the option, while using Xero, to link your bank accounts and credit cards, but you can also choose to manually account for cash transactions instead. Even though manual cash accounting can be a hassle, some users are hesitant to give their software provider access to their bank account because of security concerns.

• Inventory management: Xero comes equipped with a full-featured inventory management system that enables users to generate inventory products, keep track of purchase orders (POs), monitor inventory expenses, account for the cost of goods sold (COGS), and check inventory levels. Because FreshBooks lacks this functionality, our team recommends that anyone selling inventory use Xero instead.

• Management of fixed assets: Xero includes a fixed asset manager that keeps track of your fixed assets, calculates depreciation, and records when fixed assets are sold or otherwise disposed of. If your company has a significant number of fixed assets, Xero is the accounting software that we recommend.

• Unlike FreshBooks and other accounting software, Xero can support an unlimited number of users, making it an ideal choice for businesses with huge accounting departments. As a result of this, we advise companies with more than 10 people working in their accounting department to use Xero.

When to Use Alternative Software

Both FreshBooks and Xero offer capabilities that can be customised to meet a variety of requirements. FreshBooks excels in customer support, while Xero is notable for its inventory management capabilities. On the other hand, we strongly suggest going with a different piece of software in the following scenarios:

• Management of the inventory with all of its features and improved customer service: The inventory management tools of Xero are excellent; but, the software does not include the customer assistance that we look for in an accounting software solution.

Instead, we suggest going with software that has both of these features, and we believe that QuickBooks Online is the best option. Support is offered by live chat, or you can ask for a person to call you instead. In addition to that, QuickBooks provides a vast amount of information that may be used for self-help.

• Inventory management with all the bells and whistles, including a slick mobile app: FreshBooks is the best option for us when it comes to the capability of mobile apps, but it does not include tools for inventory management.

If you are looking for a provider that can handle inventory accounting as well as provide a solid mobile interface, our top pick is Zoho Books. During our assessment of mobile app functioning, it received a flawless score every time.

FreshBooks vs Xero: General Features

Because FreshBooks isn't a full-featured accounting software programme to begin with, it falls behind Xero in terms of general functionality. This puts FreshBooks in a disadvantageous position.

FreshBooks has double-entry bookkeeping, but it lacks important features such as adjusting and closing entries, classifying liabilities as current or long-term, importing a chart of accounts and beginning balances, and setting the type of entity being tracked. These features are essential to running a successful business.

Xero is a full-featured accounting service that possesses the bulk of the general accounting capabilities that we would want to see. These features include the ones that we've highlighted above that are absent from FreshBooks. On the other hand, there are some features that we could not find on Xero, and these missing features are related to note payable amortisation. It would be useful if Xero could automatically construct an amortisation schedule for long-term notes, despite the fact that this won't have any impact on the user experience as a whole.

The main takeaway here is that, in terms of general accounting functionality, we believe Xero comes out on top overall. Despite this, we believe that FreshBooks has a lot of untapped potential. Its basic approach is a smart step to assist freelancers self-manage their books without digging too deeply into the complexity of bookkeeping because it primarily serves persons who do not have experience with bookkeeping.

FreshBooks Accounting Software

You have the ability, when using FreshBooks, to select from three different service plans: Lite, Plus, and Premium. In addition, for a limited time only, FreshBooks is providing new users with a discount of sixty percent for a period of six months on the Lite, Plus, and Premium plans if they want to forego the thirty day free trial period and buy the software immediately.

Let's talk about the features that are included in each and every FreshBooks package before we get into the specifics of the variations between these plans and what each one may provide for your company. Their three plans all consist of the following components:

• Invoices that are both professional and may be customised
• Online acceptance of credit cards as well as automated clearing house (ACH) bank transfers
• Expenditures and reports pertaining to a project
• Accounting fundamentals consist of things like balance sheets, cost of goods sold, and the chart of accounts, among other things.
• Capability to track time and expenses, as well as send estimates.
• Information about customers and their relationships are stored here.
• Tools for managing teams and clients, as well as for cooperation
• Control panel for keeping an eye on all of the accounting operations
• The FreshBooks mobile app, which syncs your data automatically.

1. FreshBooks Lite

The initial plan that FreshBooks provides is the one that is the easiest to use and, as a result, the one that costs the least. FreshBooks Lite can be purchased for a monthly fee of $15, or for a discounted rate of $13.50 per month if you choose to subscribe on an annual basis.

This subscription, which allows you to attach up to five billable clients to your account, is described on the FreshBooks website as being ideal for use as accounting software for self-employed individuals, and more specifically by owners of mobile businesses.

In addition, FreshBooks Lite comes with the following features:

• Unlimited invoices, each one uniquely prepared
• Unlimited cost entries
• Import de banque automatisée
• Tracking of time for an unlimited amount
• Unlimited estimates
• Acceptance of bank transfers and credit cards on the Internet via ACH and credit cards
• Reports required during tax time
• Personalised features and operations process
• Over 200 different ways to integrate, including payroll systems, customer relationship management programmes, payment processors, and many more.

2. FreshBooks Plus

For small businesses that require more from their accounting software, FreshBooks provides a Plus plan that may be purchased for $25 per month or for $22.50 per month if purchased on an annual basis. This plan is the most popular choice.

FreshBooks Plus contains all of the features that are included in FreshBooks Lite, as well as the following additional features:

• Proposals without limits
• Recurring billing that is handled automatically
• Reports using the double-entry method of accounting
• Fees for being late on schedule
• Reminders of overdue payments sent automatically
• Client retainers

With the Plus plan, you also can add FreshBooks advanced payments for a fee of $20 per month.

3. FreshBooks Premium

The ultimate FreshBooks Premium plan is tailored to the needs of larger, expanding enterprises. You get access to all of the features of the previous two plans, which cost $50 per month (or $45 per month if you choose for the yearly plan), and you can accommodate up to 500 billable clients with this plan.

It is essential that you are aware that none of these FreshBooks options allow access for more than one individual user. If you want to add members of your team to your account, there will be an additional charge of ten dollars a month for each user.

Xero Accounting Software

Let's investigate what Xero has to offer now that we have an idea of how the different FreshBooks plans compare in terms of their pricing and the features they include. Xero offers three different plan options, which we have already mentioned: Early, Growing, and Established.

You are granted the ability to send invoices and quotes, enter bills, and reconcile bank transactions with each of these options. In addition, the following components are included in every single Xero plan:

• Users with no limits
• Mobile app access
• Software for managing stock inventories
• Xero's adaptable dashboard allows for streamlined financial reporting and tracking.
• Online payment acceptance
• Asset management tool
• Automated bank feeds for a number of different financial institutions and accounts
• Synchronisation of contacts and intelligent listings
• Online orders for merchandise
• Software for handling sales tax
• Online filing system
• Over 700 possible integrations, including payment processors, time tracking, point of sale systems, and many more.
• Gusto Payroll's comprehensive suite of services comes with an integrated integration option (with associated costs)
• Security with several layers
• Access to the mobile accounting app developed by Xero.
• Support for online customers round-the-clock and without limits.

1. Xero Early

The Early plan will be the initial choice available for Xero, and it will be one of the most cost-effective accounting software options you can discover; but, it will have limited capabilities. You will be able to send five invoices and quotes, enter five bills, and reconcile 20 bank transactions if you choose for the Xero Early plan, which costs $9 per month.

Because of the limitations placed on your accounting skills, Xero Early is designed for usage by sole proprietors or extremely small organisations.

2. Xero Growing

On the other hand, the Xero Growing plan will get your small business access to a greater number of features, but it will also set you back an additional $30 each month.

At this price point, you will no longer be subject to the restrictions that are associated with the Early plan. Instead, you will be able to send an unlimited number of invoices and quotes, enter total bills, and reconcile an unlimited number of bank transactions.

3. Xero Established

The third and final plan that Xero offers is called the Established plan, and it is geared towards medium-sized organisations who have already established themselves and are looking for extra capabilities inside their accounting software.

Consequently, Xero Established will provide you with all of the features of the Growing plan in addition to multi-currency options, tools for expenses that allow you to capture and manage claims, and tools for project management that allow you to track time and costs. The cost of Xero Established is $60 per month.

Apps and Integrations

The ease with which one accounting solution may share data with other back-end systems is one factor that can influence how useful that solution is. In most instances, they will be computer systems that store information regarding customers and financial transactions (a point-of-sale application or a CRM database). However, they may also be associated with productivity, paperwork, projects, or even e-commerce.

Make sure the software you choose has native integration or at the very least an API for sending data back and forth if any of these systems are part of your IT environment and will impact how you manage your finances. If any of these systems will affect how you manage your finances.

Payment processing, customer management, e-commerce, data analysis, point-of-sale (POS), and document management are just some of the areas that can be improved with the help of Xero's stocked marketplace of more than 500 native add-ons. The add-ons Salesforce, Shopify, PayPal, and ADP and Zendesk are among the most popular. In addition, if you have any further integration requirements, you can make use of Xero's REST API service or speak with a developer who is part of their partner network.

The add-on marketplace provided by FreshBooks does not fall short of expectations, despite the fact that it is not as extensive. You won't find any of these marketing tools (HubSpot, ActiveCampaign, MailChimp, or Wufoo) or project management tools (Basecamp, Citrix Podio, or Proposify) with Xero. In addition, the FreshBooks Application Programming Interface (API) and webhooks can be used to synchronise data with third-party programmes for the purpose of custom integration.

Banking and Cash Management

FreshBooks' financial functions, particularly its bank reconciliation functionality, can be difficult to use and are somewhat limited in scope. We have observed that FreshBooks transfers money from the Petty Cash account to cover any charges that are submitted manually.

Matching transactions in the bank feed is the one and only way to correctly assign expenses to the right checking account. FreshBooks is therefore unusable if you have more than one bank account because you are unable to define which accounts should be subtracted from expenses in the absence of a bank feed.

Unlike FreshBooks, the banking and cash management system offered by Xero has the ability to connect to a bank feed but does not mandate its use. You are able to print checks, set up various cash accounts, and reconcile bookkeeping records and bank statements with the help of Xero.

On Xero, we've noticed a few impediments that aren't material in and of themselves, and these setbacks focus more on practical expediency than anything else. As we've seen, it's not possible to include both cash and checks in a single deposit entry at the bank.

You would have to record a deposit for cash and checks individually if you only deposited cash or checks. If, on the other hand, you make your actual bank deposits in such a way that checks and cash are kept in different containers, this should not be a problem for you because you will be able to track deposits from your books to your bank statement.

Another disadvantage of using Xero is that you can't put the closing balance of the checking account in the bank statement. This is a rather minor issue. We find that just entering the balance from the bank statement and performing the reconciliation is the most convenient option for us. Rather than that, customers of Xero are required to upload a bank statement before the reconciliation process can begin.

The most important thing to remember is that Xero is recommended by our team due to its adaptability in cash accounting and banking. However, in order for us to offer FreshBooks to you, you will need to set up a bank feed connection so that it can communicate with your bank accounts.

Services for Accountants

Both Xero and Quickbooks, in addition to the software itself, provide accounting professionals with a wide array of tools and services to help them be more successful in their jobs. Because of the potential significance of this selling point for independent CPAs, it is essential to be aware of the areas in which the two vendors differ from one another.

In order to assist accountants in promoting their services, FreshBooks provides a free webinar during which participants can receive 2 CPE/CPD credits and a FreshBooks Certified badge.

FreshMap is an online directory that allows businesses to look for and connect with certified accountants. Accounting partners have the option to have their firm included to FreshMap, which is analogous to the ProAdvisor function offered by QuickBooks. Through their free Accountant Center interface, FreshBooks also provides assistance to accountants with the management of client reports and journal entries.

Xero provides accountants with a wide range of programmes, resources, and products to choose from. For instance, their partner programme is an excellent opportunity to network with prospective new customers and expand your existing client base. Partners are eligible for up to a 30 percent discount on margins, as well as free training and promotional materials, as well as a dedicated account manager.

They are also given unrestricted use of the Xero Partner Edition and a listing on the Xero Advisors Directory at no additional cost. Oh, and stickers for the window.

In addition, Xero possesses an online knowledge base that is packed with videos, webinars, and self-paced e-learning courses. These resources are designed to assist accountants in achieving professional success and obtaining CPE credits.

How to Determine Which Accounting Solution Is the Most Appropriate for Your Requirements

Xero and FreshBooks are two quite different products, despite the fact that they share a significant amount of functionality with one another. FreshBooks is an excellent option for sole proprietorships and small teams that require client billing to be made more straightforward. Xero, on the other hand, is a more robust solution that makes a better choice for either the financial administration of the entire organisation or independent accounting.

Please give us a call if you are still having problems deciding what to do. We'd be happy to lend a hand.

It is also important to keep in mind that Xero and Freshbooks are not the only cloud-based accounting solutions available.