How to Create and Manage Bills in your Xero Account

Starting a New Bill

Xero lets you start a bill from several places and reduces friction from your workflow. First, sign in to your Xero account. You can click New Bill directly from the dashboard or use the plus icon and select Bill.

You can also open Bills to Pay or the Purchases overview and create a bill from there. Each option opens the same New Bill screen, so the process stays consistent regardless of how you enter it.

Select the Supplier and Set the Foundation

Once the bill appears, select the supplier. Xero account filters contacts as you type, which keeps things quick. If the supplier does not exist yet, create a contact directly from the bill screen and proceed.

You can return later to add bank details or payment terms. What matters here is continuity. Bills stall when teams stop to perfect contact records mid-entry.

Set Bill Dates and Due Dates Correctly

Xero defaults the bill date to today, which often has nothing to do with the invoice you’re looking at. Change it. Match the document. Then set the due date with intent, either manually or in accordance with agreed supplier terms.

These dates drive cash flow visibility. When they drift, payment planning becomes reactive instead of controlled.

Add References and Source Documents

Enter the invoice number in the reference field. It seems minor until someone needs to trace a payment three months later.

Keep the source document attached to the bill. If you manually attach each Xero invoice to the relevant transactions, it will waste your team’s time that could be used for advisory services and tax planning.

You can use tools like Receipt Bot to capture, extract and categorise receipts and bills. It even linked the transactions with the relevant invoices. So, during review, your team can open the document immediately, without searching inboxes or shared folders.

Use the Total Amount Field as Control

Enter the expected total at the top of the bill. Xero accounting software compares this figure to the sum of line items during approval.

When line items fail to match that total, Xero blocks approval. That interruption is useful. It forces a pause, a review, and often a correction that would otherwise go unnoticed into the ledger.

Line Items: Decide the Quality of Your Reports

Each bill line needs a clear description, quantity, unit price, and general ledger code. Choose the correct account every time. Xero applies the default VAT rate based on the account you select.

For example, when you code a taxi expense to a travel account, Xero automatically applies VAT to the expense. You can override the tax rate when the nature of the cost requires it, such as entertainment or partially recoverable VAT.

Apply Tracking Categories for Better Insight

Tracking categories let you analyse costs by department, region, or cost centre. Apply them at the line level where possible. This approach gives you meaningful reporting without the need for journals or spreadsheets later.

Speed Up Entry with Products and Services

Use products and services for recurring purchases. When you select an item, Xero automatically fills in the description, cost price, account, and VAT rate.

Review these items regularly. Keep cost prices and accounts up to date so your bills stay consistent and reliable.

Choose Between Tax-Inclusive and Tax-Exclusive Bills

Select tax-exclusive Xero invoice templates when invoices list VAT separately. Select tax inclusive when the total already includes VAT. Use the no tax option only when VAT does not apply.

Switching tax modes after entry requires manual corrections, so confirm the setting before approval. Correct tax treatment here prevents reporting issues later.

Save, Approve, and Control Bills

You can save a bill as a draft, submit it for approval, or approve it immediately. Draft bills allow review and correction. Bills awaiting approval support internal controls when another team member needs to review them. Approved bills move automatically to Awaiting payment.

Manage Bills After Approval

Approved bills sit ready for payment. Your team can see what is due, what can wait, and how upcoming payments affect cash. This clarity only exists when earlier steps received attention.