Very few business owners—except those with a true passion for accounting—genuinely enjoy bookkeeping. However, it’s a necessary part of your business. that cannot be overlooked or worked around.
Luckily, you can use one of the many automated accounting solutions offered in the B2B marketplace, something that saves you from the expense of hiring a full-time accountant while also ensuring your books are in tip-top shape.
But which one is right for you?
Each product has a slightly different set of features at slightly different price points, and this can make it difficult to know which is the best for your business.
Two big names in the world of accounting software are Freshbooks and Xero. Both will help you keep better books, but they don’t do the same thing.
Generally speaking, Xero is a more comprehensive service, which makes it better for bigger businesses who need to deal with inventory, purchase orders, taxes, payroll, etc.
On the other hand, Freshbooks is more simplistic and easier to use, and it’s designed for invoice-driven, service-based businesses run by individuals or small teams.
But there’s a lot more to the story. So, to help you determine which one is right for you, we’ve put together this guide to help you distinguish between the two and make the right decision.
What Do They Do?
Both Freshbooks and Xero are online programs that help you automate most of your bookkeeping operation.
The exact nature of the services available to you depends on which tier of service you purchase (detailed later), but here is a breakdown of the core features.
To start, both Freshbooks and Xero allow you to:
- Create and send custom invoices.
- Accept online payments.
- Track revenue and expenses.
- Give estimates and quotes and turn them into invoices.
- Connect your bank account to help ensure all expenses are reported accurately.
- Integrate countless apps and other services to help put everything in one place.
- Manage projects by putting all files in one place, tracking expenses, and budgeting.
- Generate financial reports to help you better understand the state of your business.
- Monitor your business’ revenue and expenses in an all-in-one dashboard.
As you can see, both allow you to perform a wide range of accounting functions, but each offers its own unique set of features, and this is what’s going to make it easier to distinguish between the two.
Unique Features Offered By Freshbooks
In addition to the features listed above, things you get with Freshbooks that don’t with with Xero include:
- Time tracking
- Free telephone support
Unique Features Offered By Xero
As a more comprehensive accounting program, Xero allows you to do quite a few things that Freshbooks doesn’t, such as:
- Perform Bank reconciliation
- Manage inventory (if you want to integrate this with a POS system or do it across multiple locations, you will need to connect with one of Xero’s partners)
- Generate purchase orders
- Track sales tax
- Manage fixed assets
- Process transactions in multiple currencies
- Store contacts and relationship history
- Manage payroll (add-on service provided by Gusto)
As you can see, Xero offers a much more comprehensive set of features, which is why it’s ideal for larger businesses, as well as companies with inventory needs.
Who Are They For?
Clearly, Xero offers you more, but not every business needs more. In fact, for many businesses, using Xero would be a waste, largely because you’re not going to be using many of the features it offers.
However, if you’re still on the fence about which one to use, consider that Freshbooks is best for:
- Small businesses with few or no employees
- Service-based businesses that generate income largely through invoices
- Agencies, consultants, and other service firms
If your business does not fall into one of these categories, then you’re probably going to want to go with Xero.
It does pretty much everything you would need an accounting program to do, and anything it can’t do, such as manage inventory through a POS system or accept in-person payments, can be done by one of Xero’s partners and integrated into your Xero account.
How Much Does it Cost?
Another factor that will help you determine which product is best for you is price. The rates for each are reasonable, both in terms of per transaction fees and monthly subscriptions, but here’s a breakdown of the specific pricing plans each company offers.
When accepting payments online, you will pay a 2.9% fee + $.30 per transaction. If you accept payments via bank transfer (ACH), then the fee is 1%.
At the moment, Freshbooks does not offer a way for you to accept in-person payments, but you can integrate third-party apps for this, such as Stripe or Square.
However, as mentioned, if you’re running this type of business, Xero is probably going to be the best option.
All of plans offered by Freshbooks allow you to:
- Create and send invoices
- Accept payments online
- Import expenses from your bank/receipts
- Send estimates
- Track time
- Budget projects
- Manage everything from the Freshbooks Dashboard.
Exactly which plan is best for you, though, will depend on how big your business is and what your needs are. Here are the different plans and a summary of what you get with each one:
- Lite ($15/month) – This just gives you unlimited access to the services mentioned above. It’s designed for businesses with no more than five clients
For those looking for a bit more, you have two options:
- Plus ($25/month) – more than five clients but less than 50
- Premium ($50/month) – more than 50 clients but less than 500
In addition to the basic services mentioned above, the Plus and Premium plans allow you to:
- Set up automatic payment reminders
- Charge late fees for overdue invoices
- Perform double-entry accounting
- Adjust the general ledger with journal entries
- Schedule recurring invoices
- Send proposals
- Collaborate with your accountant.
If you have more than 500 clients and generate more than 150k/year in income, then you can use Freshbooks Select, but you will need to contact them for a quote and to design your specific service package.
When processing payments online, Xero uses Stripe, so the transactions fees are:
- 9% + $0.30 per credit card transaction
- 8% per ACH transaction with a $5 limit.
These fees are almost identical to those offered by Freshbooks, so there really is no advantage in terms of cost savings if all you’re looking to do is process payments.
One slight difference, though, is that Xero allows your clients to pay using PayPal, which some may find to be a useful feature.
In terms of plans, like Freshbooks, Xero also has three different options: Early, Growing, and Established.
No matter which plan you choose, you will be able to do perform the functions mentioned earlier, but each plan is slightly different.
Here’s some more detail about what each plan offers:
- Early ($9/month) – With this plan you’re limited to sending five invoices and quotes, entering five bills, and reconciling 20 bank transactions per month.
- Growing ($30/month) – This is the same as the Early plan except there are no limits on the number of invoices, quotes, bills, and bank reconciliations you can process.
- Established ($60/month) – In addition to what you can do with Growing, this plan also allows you to handle multi-currency transactions, capture and manage expenses, and track project times and costs.
The low-end plan offered by Xero is cheaper than the cheapest version of Freshbooks, but by limiting you to just five invoices, it really isn’t a practical option for most.
The other plans offered by Xero are slightly more expensive than those offered by Freshbooks, but again, they’re different services designed for different businesses, so price shouldnt’ be the only factor.
If you’re just invoicing and doing basic bookkeeping, Freshbooks will be fine and it will save you a little money. However, if you need more, shell out the extra few bucks for Xero and you’ll be thankful you did down the road.
In general, the only way to go wrong when choosing between these two services is if you use Freshbooks when you should be using Xero. Using Xero when you should be using Freshbooks won’t hold you back, but it may make things more complicated than they need to be.
Smaller, less-complex businesses that invoice for time and work will get everything they need from Freshbooks, and Xero is a good choice for pretty much any other business.
We hope this review has helped clarify the difference between Xero and Freshbooks, and that you now feel prepared to go out and buy the one that will be most useful for you and your business.