This Is How Xero Bacs payments work

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Posted on
August 10, 2022
Bacs payments

This Is How Xero Bacs payments work

Xero Bacs payments introduction

Bacs payments is what larger companies use to make bank payments. It is often confusing for smaller companies who aren’t yet signed up with Bacs. As a regular Xero user you likely have encountered Bacs payment files when running payroll, or when making a batch payment. 

Your finance team has a number of options on how to best take advantage of Xero when it comes to making payments. You can sign up with Bacs in order to import Bacs payment files for payroll and supplier payments. Or, you find a banking system which integrates with Xero: “Pay with Transferwise”, Credec, or Telleroo (that’s us).

How to store bank account details in Xero?

Regardless of which banking system or Bacs provider you are using, you will need to store your employee and supplier bank account details in Xero.

Store employee bank details in Xero

Navigate to Payroll and go to Employees, this will give you a list of all your employees.

Clicking on the employee name will give you the above menu. Select Electronic Transfer and input the employee’s bank details below. Xero doesn't validate the submitted bank details upon input.

Store supplier bank details in Xero

Scroll down to the Batch Payments section under a Xero contact. You can submit your supplier bank details here. Make sure you input these in the right format: Sort code and then account number in one string as per below:

You can leave Bank Account Name empty. The “Supplier reference” field is important. We have dedicated a whole section to batch payments references as this has caused confusion to Xero users in the past.

There is an alternative way to add payment details to a supplier in Xero. When running a batch payment you can add bank account details on the fly without having to click into the contact:

Under “Bank account” you can add Sort code and Account number. Note here that Xero doesn’t do any validation on these details so you could theoretically insert the wrong details and it wouldn’t get flagged. Once added here it will get automatically populated under the supplier contact.

Manage users who get to edit bank account details in Xero

In the context of Bacs payments and storing corresponding payment records on Xero, they do a fabulous job in limiting access as to who gets to add and edit bank account details, see below:

It is important to manage this properly otherwise this may lead to mistakes, i.e. paying the wrong supplier large amounts.

Xero is a secure place to store bank details. They will send out the below email to all bank account admins if bank details have been changed:

You usually receive an immediate message from the “Xero Security Team” highlighting that bank account details have been edited.

How to make batch payments in Xero?

You have a number of different routes to choose from when it comes to making batch payments in Xero. We have listed your options below:

Your choice will depend on the number of suppliers that need paying a month, and if you usually have to set up many new suppliers. We believe “Pay with Transferwise” is a great self-directed option for smaller businesses paying less than 15 suppliers per month. Telleroo is great and the best option if you have more suppliers to pay. We wouldn’t recommend Bacs unless you have 1000 or more supplier payments to make and you want to save on bank fees.

Xero batch payments reference breakdown

This has been a source of confusion for many years. Some Xero users prefer to make one payment per invoice, however, others prefer to group multiple invoices from the same supplier into one payment, a group payment. This alone makes the allocation of the right reference difficult. To add even more confusion to it: depending on the payment method outlined above, the behaviour is different. We have put together some guidance:

Do you want to batch multiple invoices from the same supplier?
  • If YES, populate the “Details Field” under the Contact. The "Details Field" on the Contact usually contains your business name or your account number, and is drawn from the contact record
  • If NO, don’t populate the “Details Field” under the Contact. The individual bill reference will be taken automatically when making a Xero batch payment

Some companies need to pay the same supplier repeatedly, whereas others only have one off payments to make. Keep in mind that with “Pay with Transferwise” you can’t do any group payments; all payments must be made individually. With Telleroo you can group multiple bills into one group payment using the contact reference.

How to best integrate Xero with my banking system?

You’d have three approaches to choose from:

  • You either need to sign up with Bacs (here), or upgrade to become a corporate client with your bank (here)
  • Use Telleroo. We support Xero payroll and Xero bill payments including a real time bank feed
  • Bill payments integrations through Transferwise or Credec

Reach out for more guidance on this one. It primarily comes down to the number of payments you make per month, and your payment run schedules.

Can I do Bacs runs from Xero?

Xero does allow you to do a Bacs run. The problem is that you need to first go through the process of registering with Bacs. Learn more about how to get Bacs registered here.

Export Bacs payment file from Xero

In order to produce a Bacs payment file in Xero you need to add your Bacs Service User Number (SUN) to your payroll settings. This is under “Payroll Settings” under your overall settings in Xero. See below:

Most Xero users will have never heard of a SUN before. If you don’t have a SUN,fill in a dummy one, a six digit number, or if you have a SUN then add it to the field “BACS Service User Number (SUN)”. 

Download Bacs payment file without Bacs Service User number in Xero

If you don’t have a Bacs Service User Number (SUN), you can still download Bacs payment files to submit to Telleroo. All you need to do is add a dummy six digit SUN to your “Payroll Settings”. This has been raised a few times by Xero users before (here).

How to reconcile batch payments in Xero?

With Telleroo you are in full control of the format we push back transactions to Xero. Depending on the payment type, payroll or supplier payments, we either send one line per batch or one line per payment to Xero, whatever you prefer.

Any changes you are making on Telleroo are immediately reflected in Xero. Some users love this feature for payroll payments in particular, as it ensures confidentiality.

What is a Xero Bacs payment file?

A Xero Bacs payment file contains payment records and amounts of payments to be submitted to Tellerooo. Provided you keep employee or supplier payment records in Xero you can download a Xero Bacs payment file. We advise against opening the Bacs file as it comes in a txt format which isn’t made for humans to read. About 90%+ of wage payments use this format, so it works.

Xero Bacs payment date

You can set a future date as and when you want your payments to go out.

When using Xero with Telleroo you can set any Payment date here and we will schedule your payment run for this date at 10am. To my knowledge this doesn’t work with Transferwise or any other banking system.

How to register for Bacs?

In order to process a Xero Bacs payment file you need to be registered for Bacs, or become a Telleroo customer. Telleroo accepts any regular Bacs payment files without any bank approval needed. We have done a detailed post on how to sign up with Bacs here. We think it's only worth registering for Bacs if you have over 500 employees.

Xero Bacs payments conclusion

As you can tell by the length of this piece, you need to think this through before getting started. You need to have a Bacs facility with your bank to fully take advantage of Xero Bacs payments. Any business with less than 500 employees should look into alternatives.

We at Telleroo have over 5-years of experience working with Xero. We tie into their workflow every step of the way: from payment submission through to seamless reconciliation. Click here to get a test account and see how Telleroo can make your Xero Bacs payments straightforward.