This article will explain how reconciliation works with GoCardless for Xero when your GoCardless account has borderless payments enabled.
To find out more information about borderless payments, take a look here.
Borderless payment collection means the payment will be collected in your customer's currency, and then converted to be paid out in your home currency. We need to reflect this currency conversion in Xero and this is handled within the Direct Debit interim account that is created for you within Xero.
We'll use an example to show how collecting a foreign currency invoice will be reconciled:
1). For this example, we'll assume that the business is based in the UK. We'll use an invoice that is in USD, being charged from a customer in the USA. The invoice is for $100 and the due date on the invoice is 10/12/19.
2). On the due date of the invoice, the payment is collected from the customer's bank account by GoCardless. The invoice is marked as paid in Xero on this day, and this payment is paid into the Direct Debit interim account. Because this payment will be paid out in GBP, it is converted into GBP at this step using Xero's inbuilt exchange rate.
In our example, the exchange rate Xero has used is 1 GBP = 1.29319 USD, so we get a payment of £77.33 in the Direct Debit interim account.
3). On the payout date, the funds are transferred by GoCardless to your bank account. Within Xero on this date, three transactions will show in the Direct Debit interim account:
- A transfer the payout amount (net of fees) into your current account
- A transfer of the payout fees that is posted against your nominated fee account
- An adjustment transfer that is posted against your nominated realised Currency Gains / Losses account
The adjustment transfer is needed because the exchange rate that Xero used when the payment was marked as paid and the exchange rate used by GoCardless on the payout date are different. Unfortunately we cannot ensure that the exchange rates used are the same, as they are from different sources and are used on different days so there may be some fluctuation.
In our example, the exchange rate GoCardless has used on the payout is 1 GBP = 1.29430 USD.
This means we get the following amounts:
- Fees of $2.25 -> £1.74
- Net payout of $97.75 -> £75.52
- FX Adjustment of £0.07 (77.33 - 75.52 - 1.74 = 0.07)
4). On your Current Account reconciliation page, once your bank feeds have imported, your receipt from GoCardless should auto match for reconciliation against the transfer we created from the Direct Debit account.