What is Xero clearing account and do I need one?

What is a Clearing Account?

A clearing account is a temporary holding account used to manage transactions before they are assigned to their final destination in your financial records. It acts as an intermediary, ensuring that all amounts are accounted for correctly before being moved to your main accounts.

Clearing accounts are widely used in businesses dealing with multiple transactions, payment gateways, payroll, and bank transfers. They help maintain accurate records and prevent errors in financial reporting.

Why Do You Need One?

Imagine you're an online store owner selling through Shopify. Every day, customers place orders, and Shopify processes the payments. The problem? Shopify doesn't send you money for each order immediately—it groups all sales over a period (e.g., one week) into a single payout after deducting transaction fees.

If you don’t use a Clearing Account, this happens:

Each order creates an individual invoice and bill in your Bank Account.

Every sale has its own invoice with the full amount.
Every fee Shopify charges is recorded separately as a bill.

Your Bank Account gets crowded with transactions from different sources.

Shopify payouts, supplier payments, refunds, and other income sources are all mixed together.

When Shopify finally pays you, it's a single lump sum—not individual payments.

Example: You had 50 sales this week, but instead of receiving 50 payments, Shopify sends one payout of $5,000.
But this $5,000 isn’t the total of your invoices—it already has fees deducted!

You must manually reconcile each invoice and fee to the lump sum.

You now have to match the Shopify payout to all the individual invoices and bills that made up that payment period.
You might miss an invoice or match the wrong ones, making your financial records inaccurate.
The whole process is a time-consuming nightmare.

How a Clearing Account fixes this issue:

Each order is recorded in the Clearing Account.

Instead of going directly into your Bank Account, all Shopify invoices and fees are stored in the Clearing Account.

Shopify sends you a single payout.

When Shopify sends the payout, this amount is transferred from the Clearing Account to your Bank Account.

The Clearing Account reaches a $0 balance.

Since all invoices and fees have been accounted for, the Clearing Account balance becomes zero, meaning everything has been properly recorded.

Reconciliation becomes a simple one-to-one match.

When you go to reconcile the Shopify payment in your Bank Account, you only have one transaction to match—
✅ The exact amount transferred from the Clearing Account.
No more digging through 50+ invoices to manually match each one.

Benefits of a Clearing Account

✔ Simplifies Reconciliation

Eliminates the need to manually match multiple invoices to a single payout, making bank reconciliation quick and easy.

✔ Keeps Your Bank Account Organised

Prevents clutter by separating sales transactions from other payments, refunds, and expenses.

✔ Ensures Every Transaction is Accounted For

A zero balance in the Clearing Account confirms that all transactions have been correctly processed.

Step-by-Step Flow of Transactions (Shopify → Xero) using Post to Xero

This flow diagram explains how the Post to Xero app automatically handles the flow of Shopify orders, payments, and bills into Xero, using a Clearing Account to simplify reconciliation.

Step 1: Customers Place Orders on Shopify

Multiple customers purchase products from your online store, generating new orders.
The Post to Xero app automatically creates an invoice and a bill for fees in Xero for each order it processes.

Step 2: Shopify Collects Payments and Consolidates Payouts

Instead of sending individual payments for each order, Shopify groups all orders into a single payout for a set period (e.g., each business day).
Shopify deducts processing fees from the payout before transferring the funds to you (e.g., Shopify transaction fees or credit card fees).

Step 3: Recorded in the Xero Clearing Account

The Clearing Account in Xero holds all the invoices, bills and payments that were automatically created by the Post to Xero app.
This allows invoices, bills and payments to be tracked and verified for any discrepancies or disputes.

Step 4: Transferring from the Clearing Account to the Bank Account

Once Shopify sends the payout and it has been confirmed, the Post to Xero app automatically transfers the amount from the Clearing Account to your bank account.
Assuming that no new orders are received after the Shopify payout, the Clearing Account balance will return to $0, confirming that all invoices, bills and payments have been fully accounted for.

Step 5: Reconciling the Payout in Your Bank Account

After the transfer, you can now reconcile the Shopify payout with the Clearing Account transaction in Xero.

Result: Instead of manually matching multiple invoices, bills and payments, you only match one transaction, making reconciliation simple and stress-free.

By using a Clearing Account with Post to Xero, you avoid manual reconciliation headaches, ensure accurate financial records, and simplify bookkeeping. Learn how to set up a Clearing Account for the Post to Xero app.