This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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When running jobs in XPM, we have two types of costs. We have time costs, which are created by time sheets against tasks on a job, and we have disbursements. Disbursements are any cost associated with completing the job that is not a time sheet. Disbursements are also known as costs in XPM. These costs could be from subcontractors that do not do time sheets, outsourcing fees, and any general disbursements such as Xero subscription fees. In this section we’ll be covering how to manage each type, and the considerations you need to make.
When we update the accounts payable for the Xero subscription fees, we also need to update the corresponding receivable with the customer. This will also require you to update your billing with the customer, however this is managed.
If the client moves onto Xero Payroll, Expenses or Projects, it is generally easier to get your client to pay for Xero directly. This avoids the constant upgrade and downgrade of the Xero subscription each month. It just isn't worth the admin, and it is far too risky not to track it.
If you are billing your client for their Xero subscription fee, we need to consider how this impacts their job in XPM. For time-charge agreements you will most likely be billing your accounting services separately from your Xero subscription, and therefore do not need to include your Xero subscription cost on the job.
If you do bundle your Xero subscription fees into your fixed monthly service offering, you will need to add these as costs to the appropriate jobs inside XPM. This is because you are recognising revenue for the Xero subscription, so we need to recognise the corresponding cost for this revenue. This is very common with fixed-price agreements.
Let’s look at an example:
Say a staff member has a base rate of $50 per hour and spends 20 hours on a job. This is a $1,000 cost. If we charge $3,000 for the job, which includes both our services and a standard Xero subscription, we might think we have made a profit of $2,000 on the job. In reality however, we have also incurred an annual cost to Xero for the subscription. We therefore need to recognise this cost to bring our total job cost to $1,700 ($1,000 in time, $700 to Xero). This reduces our profit to $1,300. This is a major difference, so it is important to get this right.
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