6 Common Xero Mistakes Small Charities and Non-Profits Make

Lots of small charities and non-profits use Xero - and for good reason. It is one of the best-known accounting systems in Aotearoa New Zealand, and plenty of treasurers, bookkeepers and accountants already know how to use it.

But Xero is mainly built for businesses. Unless it has been set up carefully for your organisation, it can be easy to pay for more than you need, make things more complicated than they need to be, or create extra work at the end of the year.

Through my work across the non-profit sector, I have seen inside the Xero accounts of close to 100 charities, trusts, clubs and incorporated societies.

These are six of the most common things I see going wrong, and what you can do instead.

In this guide:

1. Paying too much for Xero

Let’s start with the obvious one: plenty of small charities are paying too much for Xero.

Xero offers a discount for eligible non-profit organisations, but it is not applied automatically. You usually need to apply for it.

If your Xero account was set up by an accountant or bookkeeper, they may already have sorted this for you. But if you signed up yourself, it is worth checking.

Xero's NZ page for non-profits: https://www.xero.com/nz/small-businesses/non-profit/

The other common issue is being on a bigger Xero plan than you actually need.

Lots of small charities are paying for the Grow plan, which costs close to $100 a month once GST is included. But many of those organisations are not using most of the extra features.

For a small charity that mainly uses Xero to keep track of bank transactions, store receipts and prepare annual accounts, the basic Ignite plan is enough.

There are some reasons you might need a larger plan - for example, if you use Xero payroll. But it is worth checking rather than assuming your current plan is the right one - and we recommend Thankyou Payroll over Xero's payroll.

What to check

Have a look at:

• whether your organisation is receiving the non-profit discount;
• which plan you are currently paying for;
• which features you actually use; and
• whether a cheaper plan would still do everything you need.

Take care before downgrading, especially if you use payroll, staff expenses or other features that are only available on particular plans.

2. Creating a new account for every project

This one can be confusing, because Xero uses the word account for several different things.

You have your bank accounts. But you also have a chart of accounts, which is the list of categories you use to record your income and spending.

At Good Numbers, we try to avoid using the same word for two different things. Unfortunately, Xero does not.

Here is a common example: your organisation is running a workshop in March 2026, and you want to keep track of all the money connected with it. So you create new categories in your chart of accounts called things like:

• March 2026 Workshop Income
• March 2026 Workshop Expenses

That might seem sensible at the time.

But if you do the same thing for every workshop, event, project or grant, your chart of accounts quickly becomes huge. I have seen Xero files with hundreds of categories, many of which were only used once. This makes Xero harder to use and makes your reports harder to understand.

A better approach is to keep a small, consistent set of categories that explain what the money was for.

For example:

• Programme expenses
• Travel
• Donations and koha
• Grant income

Then use Xero’s tracking categories to record which project, event or programme the money relates to.

For example:

This lets you see the total cost of each project without creating dozens of new accounts every year.

What to do

Keep your chart of accounts as small and consistent as you reasonably can.

Use tracking categories for things like:

• individual projects;
• events and workshops;
• grants or funding contracts;
• different branches; or
• different programmes.

Before making major changes to an existing chart of accounts, check with whoever prepares your annual accounts.

3. Using Xero’s business categories for charity reporting

When you first set up Xero, it usually gives you a standard chart of accounts. The problem is that those categories are mainly designed for businesses.

If nobody has taken the time to adjust them for your charity or non-profit, you may find that your Xero reports look very different from the reports you need to prepare at the end of the year.

This often creates a familiar annual headache.

You open your Xero profit and loss report. Then you open the Charities Services or XRB reporting template. Then you spend hours trying to work out which Xero categories belong in which part of the annual report.

Sometimes several Xero categories need to be added together. Sometimes one category needs to be split apart. Often the whole process happens in a separate spreadsheet that only one person understands.

Then you do the same thing all over again next year.

What to do

Set up your categories with your annual reporting in mind.

For example, your income and spending categories should make it reasonably easy to produce the information required by the reporting standard your organisation uses.

You can also set up customised reports in Xero so that your accounts are grouped in a way that better matches your year-end reporting. See: https://central.xero.com/0/article/Create-reusable-custom-report-layouts

This may not sound like the most exciting task.

But getting it right once can save a lot of time every year after that.

If you combine this with a smaller and more consistent chart of accounts, year-end reporting can become much more straightforward.

4. Entering a bill, then recording the expense again

Xero lets you upload or email a bill to pay into the system.

This can be useful. It stores the original invoice and creates a bill in Xero that can later be matched against the payment from your bank account.

The problem usually happens when that payment appears in the bank feed.

Because the bill already exists, you need to use find and match the bank transaction to it.

But it is very easy to accidentally click 'OK' create a new expense instead.

When that happens, Xero now has two records for the same cost:

1. the bill you originally uploaded or emailed into Xero; and
2. the new expense created when you reconciled the bank transaction.

The original bill may still look unpaid, while the new expense is also included in your reports.

That means the same cost may appear twice.

This can be confusing during the year and can cause bigger problems when you try to reconcile everything at year-end.

What to do

When the payment appears in your bank feed:

• look for Xero’s suggested match;
• use Find & Match if the bill does not appear automatically; and
• only create a new expense if the bill is not already sitting in Xero.

It is also worth asking whether you need to enter every supplier bill into Xero before it is paid.

For some organisations, managing bills in Xero is useful. For others, it is an extra step that creates more chances for things to go wrong.

If your organisation usually pays invoices straight away, it may be simpler to attach the invoice or receipt directly to the bank transaction when you reconcile it.

5. Manually marking bills or invoices as paid

At the bottom of most invoices and bills in Xero, there is a button that lets you record a payment.

It looks simple enough.

But this button is doing more than just adding a note to say the bill has been paid. It creates a payment transaction inside Xero.

For example, imagine that you receive a bill and pay it through online banking.

You then open the bill in Xero and manually record it as paid.

A few days later, the real payment arrives through your bank feed.

You now need to match the bank transaction to the bill or invoice you already created. But, it is already marked as paid, so it doesn't show up under 'Find & Match'. Instead, you record the bank transaction as a new expense, and you have entered the same payment twice.

This is one of those Xero features that makes sense once you understand how the system works - but is very easy to use incorrectly.

What to do

Only manually record a payment when you understand why you are doing it and what will need to happen when the bank transaction arrives later.

Our practical advice is:

Do not manually mark bills or invoices as paid unless your organisation has a clear process for doing this and the person reconciling the bank account knows how to match the payment later.

6. Leaving GST turned on when you are not GST registered

Many small charities and non-profits are not registered for GST.

If that is your organisation, Xero should be set up to reflect this.

Otherwise, you may be asked to choose a GST rate every time you reconcile a transaction, create an invoice or enter an expense, even though GST does not apply to your organisation.

This creates extra clicks and makes it easier for someone to accidentally record a transaction with GST on it.

Once that happens, fixing it later can sometimes be more difficult than you would expect.

What to do

If your organisation is not registered for GST, check your Xero financial settings and make sure GST is turned off for the organisation.

It is best to do this when you first set up Xero.

If your Xero file has already been used for a while, check with your accountant or bookkeeper before changing the setting.

Update your GST status:

1. In the Accounting menu, select Accounting settings.
2. Click Financial settings.
3. Under GST Accounting Method, select None.
4. Click Save.

See: https://central.xero.com/0/article/Change-your-GST-registration-status

And if you are unsure whether your organisation should be registered for GST, get advice before making any changes.

A little bit of setup can save a lot of work

None of this means Xero is a bad accounting system.

But it is a business accounting system, and small charities often need to make some deliberate choices to make it work well for them.

The most important things are to:

• make sure you are on the right plan;
• check that you are receiving the non-profit discount;
• keep your chart of accounts manageable;
• use tracking categories for projects;
• set up your categories around charity reporting;
• match bank transactions to bills and invoices that already exist; and
• make sure your GST settings are correct.

When Xero is set up well, it can work well.

When it is not, even fairly straightforward financial administration can become expensive, confusing and time-consuming—especially for the next volunteer treasurer who inherits it.

Is Xero more than your organisation needs?

Good Numbers is designed specifically for small charities, clubs and incorporated societies in Aotearoa.

Instead of taking business accounting software and trying to make it fit, Good Numbers starts with the way small non-profits actually work.

It brings together:

• your bank transactions;
• simple transaction categorisation;
• receipt storage;
• grant tracking; and
• year-end reporting.

It will not be the right fit for every organisation.

But if you are mainly using Xero to keep track of bank transactions, save receipts and prepare your annual reports, Good Numbers may be a simpler and much less expensive option.

Have you seen another common Xero mistake in a small charity or non-profit? Let us know—we may add it to this guide.