Foreign Currency and Xero

What Xero plan provides Multi-Currency?

To use multi-currency in Xero you need to be on the Premium plan. You may need to upgrade your plan to be on Premium. This can be done by the subscription holder of your Xero file and is accessed through the subscription and billing link found in your Xero organisation.

How does Xero's Multi-Currency service work?

Xero is connected to the Foreign Exchange, so the rates of exchange are updated hourly to align with the market.

Another benefit is you don’t need to worry about choosing an exchange rate when you have a transaction to process, this will happen for you automatically. However, you will need to set up which currencies you trade in, within your Xero first (before adding the foreign bank account to your dashboard) i.e. - USD, Yen etc.

To choose your currencies, go into your Xero settings, then into the foreign currencies section, and add the relevant currencies. You must have either Standard or Adviser user permissions.

How do I set up Multi-Currency in my Xero file?

To set up your bank account in Xero for foreign currency and to enable transactional bank feeds to come through daily (like your other bank accounts in Xero) follow these steps:

1. go into Accounting
2. Bank Accounts
3. and Add Bank Account
4. select the banking provider
5. enter bank account name (eg: USD account)
6. account number
7. choose “Foreign Currency” for the account type
8. then select the relevant currency from the drop-down box.
9. Follow the on-screen prompts to activate these bank feeds
10. print bank feed form, sign, and upload.

Feeds can take up to 10 business days to activate.

Please note that not all banks support foreign currency direct feeds into Xero. To check if yours does please search ‘Direct Bank Feeds for your Region’ in Xero Central and click on the link for your bank.

How to process a foreign currency sale or bill in Xero

When you have a foreign currency sales invoice or bill to enter into Xero, the process is very similar to a normal New Zealand currency sales invoice/bill, however, as you enter it you will see there is a Currency drop arrow just below the “To or From” contact. Here you select the currency that the sales invoice or bill is showing in (or should show in). It will automatically exclude GST for you.

Once this invoice is paid, the transaction will come through in your bank feeds, and you will need to match the payment to the invoice. To do this:

1. select Match
2. untick the box that says “Show NZD items only”
3. the invoice paid should now show as an option
4. tick the box beside it
5. Reconcile.

What are foreign currency gains and losses?

When you sell products or services to customers in a foreign currency, the value of that currency changes based on the exchange rate. However, exchange rates themselves can also change at random. If the exchange rate changes and the value of the currency goes up or comes down after you invoice a customer, but before you collect payment, then you have made a foreign currency gain or loss on that invoice. Gains and losses are either realised or unrealised. The difference between them depends on if the invoice is paid or not. It is unrealised while the invoice is awaiting payment. Once paid, it can calculate the actual realised gain/loss.

When you look at Xero’s Dashboard, the value you see on the screen for that foreign bank account, is in the foreign currency, not New Zealand Dollar (NZD) value.

Reporting with Foreign Currencies

Reporting with Foreign Currencies looks a bit different from normal reporting in Xero. For example, when you run a Balance Sheet Report, Xero will show the value of the foreign bank account to be in NZD. It will have a Footnote number beside it, referring to a note at the bottom of the report explaining what Exchange Rate was used in the report.

If you would like assistance setting up foreign exchange Multi-Currency in your Xero, get in touch with one of our friendly team members today. Our team understands the ins and outs of Xero and can assist you to set it up so that it works optimally for you.

If you are looking at getting into Foreign Currency trading in a detailed way, we would suggest you refer to an FX banking specialist, so they can give you a more detailed approach to rates, market information, and details on different options available to you.

Further Reading on the topic

Here are some other useful resources from around the web:

• About multicurrency - Xero

• There is a section in our article Everything Business Owners Need to Know About GST that talks about foreign currency and GST