By Tracy Miller
Feb 21, 2022
| News | Xero Training

Maintaining a tight and accurate inventory management process is a critical part of the supply chain for any product business. Timely order fulfillment, efficient storage and warehousing, and accurate forecasting of your ordering needs all depend on a reliable and transparent inventory management system.

Integrating your inventory management system with your financial accounting system, such as Xero, is an excellent way for you to gain a complete picture of your business. It will allow you to:

  • Control your inventory and sales process in the one place, in real time
  • Track sales and profitability against products or customers, and gain a better understanding of which products are the most profitable
  • Manage your inventory on the cloud; giving you access to your data from anywhere, at any time on any device
  • Improve the reconciliation process

If you use Xero, you have a few options at your disposal for managing inventory in Xero. Your Xero inventory management system can either be applied from within Xero or via third party apps which are integrated with Xero.

There are various factors which will influence which option is right for your business. Here’s what you need to know.

Inventory management from within Xero

Xero offers inbuilt functionality to manage inventory. By utilising Xero’s tracked inventory feature it will enable you to:

  • Track inventory
  • Track the cost of goods sold
  • Report on the quantity and value of inventory on hand through your balance sheet

Xero’s inventory management system enables you to create an inventory item with a default price, account, tax rate and description. This transaction detail is then saved and can be retrieved from your personalised item list when creating inventory items and/or invoices and bills.

When you sell an inventory item, this will be recorded in Xero along with revenue and purchase costs in the same accounting period.

Is inventory management from within Xero right for your business?

Xero inventory management is easy to use and completely integrated with your financial data in Xero. This gives you greater transparency, while creating efficiencies in your inventory management process through automation.

However, Xero inventory management is also relatively basic and is largely designed for small and medium sized businesses which aren’t trading large amounts of stock.

Xero inventory management might be the right option for your business if:

  • You’re looking to transition from a more manual inventory management process such as using excel or Google Sheets
  • You have less than 4,000 inventory items to track
  • You buy and sell finished goods, rather than manufacture or assemble goods
  • Your inventory management needs aren’t too complex
  • You’re not yet ready to invest in a third party inventory management app

Xero inventory management most likely won’t be the right option for your business if:

  • Your inventory management needs are more complex
  • You’re working with higher volumes of stock
  • You require purchase order receipting
  • You operate with negative inventory, where the sale of goods is recorded before purchase
  • You use the periodic inventory method, where inventory is only updated at the end of the month or year using inventory adjustments
  • You manufacture or assemble goods for sale and need to track the raw materials that make up the finished product
  • You use a different inventory accounting method such as FIFO (first in, first out) or LIFO (last in, first out)

If Xero inventory management is too limited for your business, it is worth looking at investing in a third party inventory management solution which integrates with Xero.

How to Manage Your Inventory in Xero?

Inventory management through an app which integrates with Xero

For businesses with more complex inventory management needs, utilising a specialist third party inventory management app with enhanced functionality, which also integrates with Xero, will be a better option.

An integrated app will work seamlessly with Xero, feeding inventory and sales data into Xero. This means you maintain one source of truth, while minimising double handling and data entry requirements.

What to consider when selecting a third party inventory management app

When sourcing the right inventory management app for your business it’s best to consult with a certified Xero accounting partner who will be able to recommend solutions best suited for your business which also effectively integrate with Xero.

Some of the considerations to keep in mind when selecting an inventory management solution include:

  • What volume of stock do you trade?
  • What industry do you operate in and would you benefit from an industry-specific solution?
  • Does your business operate out of multiple locations?
  • Do you need to track the raw materials or components of goods you manufacture or assemble?
  • Do you sell online and need to integrate with an eCommerce app?
  • Do you need to integrate with other apps such as point of sale software?
  • How complex are your requirements and do you require any advanced features such as serial or batch tracking?

There are several inventory solutions which integrate with Xero available via the Xero App Store. Speak to your accounting partner for advice on which option may be right for you. They can also guide you through the setup and migration process to ensure data is transferred correctly without experiencing any downtime.

Need help establishing a Xero inventory management system either within or outside of Xero? Keeping Company can help. We’ve helped countless clients establish new inventory management processes which integrate with Xero or sit inside of Xero, giving them greater transparency and control over their stock. Contact us today to see how we can help your business successfully manage inventory with Xero.

At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential. 

We have a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together and ready to help, contact us today.

1300 533 787


For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.