What is Xero clearing account and do I need one?

What is a clearing account?

A clearing account (also known as a holding account or a suspense account) is used to consolidate payments of orders when a payment gateway / provider only pays out at a set schedule (eg. once daily, next business day, weekly, monthly etc.)

As orders come in and are posted to Xero individually, the clearing account records and holds the payments on the order until a transfer is then made to the bank account where the payment gateway / provider ends up paying into, after deducting fees charged from the payment provider.

This will ensure the payment when disbursed from the payment gateway as a lump sum reconciles 1-to-1 with all the orders that were processed for that period.

Do I need a clearing account?

The short answer is, if the payment gateway pays out at a set schedule (eg. Shopify Payments, Afterpay), then yes.

If the payment gateway pays out per order (eg. Paypal), then no.