Xero vs. QuickBooks Online: what’s the best cloud accounting tool for your business?

Comparing Xero versus QuickBooks Online

A cloud accounting tool is one of the most powerful contributors to the day-to-day running of a company. With a system like Xero or QuickBooks Online, you can enjoy a crystal-clear view of your accounting, maximize tax deductions, and even stay on top of projects and time tracking.

In terms of the accounting features that most businesses need, Xero and QuickBooks Online are both comprehensive tools that tick most boxes. But their approaches are different, and they each have different pros and cons.

Both Xero and QuickBooks Online are optimized for small to mid-sized businesses, so large enterprises with more complex requirements may struggle to tick all of their boxes. But for most small businesses, agencies, retail stores and startups, there’s a lot to love about both systems.

Here’s our verdict of when to choose Xero versus QuickBooks, alongside a comparison of cost, feature sets, accountant preferences, reporting and ease of use.


Introducing Xero and QuickBooks Online

About Xero

Xero was founded in 2006 in New Zealand and has since consolidated its reputation as one of the top accounting tools on the market. Its tagline is "Beautiful business", which is the main thing you need to know about Xero: it manages to make accounting sleek and enjoyable. Xero is incredibly user-friendly, simple and powerful, and is designed to help their customers do better in their own businesses via their accounting tools.

Xero has a strong value proposition to compete with QuickBooks Online: its customers love it. Xero consistently gets stronger average reviews than QBO despite a lower quantity of them. With its younger brand image and focus on clean usability, Xero also tends to be more popular in the startup world than QuickBooks.

 

About QuickBooks Online

QuickBooks Online, the market-leading accounting software from Intuit, offers “Smarter business tools for the world’s hardest workers”. With their cloud-based system, businesses can streamline many of their repetitive tasks and processes by managing bills and invoices, tracking projects, and even tracking miles automatically with a smartphone.

QuickBooks claim on their website that 98% of customers say that their solution helps them run their business more easily, and we can see why: there’s a reason that QBO has built such a solid reputation.

QuickBooks has been in the market for longer than Xero, is very well-developed, and is generally loved by accountants - especially in the US market, which QBO has dominated. QuickBooks has an estimated 80% market share in the US. QBO claims that customers find on average $3,534 in tax savings per year.

What’s the difference between QuickBooks and QuickBooks Online?

QuickBooks is Intuit’s general accounting software, while QuickBooks Online (QBO) is specifically the cloud-based service. For QBO, you pay a monthly subscription rather than an upfront fee, and you get all the patches and software updates from Intuit. In this article, we'll mostly refer to QuickBooks Online, which is what we think you’ll likely opt for instead of Intuit’s desktop version of QuickBooks.

QuickBooks Online is rated 4.2 out of 5 on Capterra by 3520 users, while Xero has an average of 4.3 from 1880 users.


When to choose QuickBooks Online

Read on for our summary of when QuickBooks tends to be a better Xero alternative based on your business and goals.

 

1. You want a lot of value at a low price point

QuickBooks' Essentials plan is a fantastic deal for $25/month. You can send as many invoices and bills as you want, track income and expenses, and stay on top of tax. In short: everything you need to run a business.

For freelancers and other small businesses that want all of the key features of accounting software at a budget, QuickBooks is a great choice.

Even though Xero offers a tempting $9/month plan, the reality is that it's too restrictive for anything but the smallest side hustles that need less than five invoices and bills per month.

Quickbooks Essentials dashboard

 

2. You want advanced reporting

QuickBooks has an excellent reporting suite, especially if you can budget for the Pro plan ($70/month) with enhanced reports and project profitability.

It also edges ahead of Xero with its depth and level of customization for dashboards, including budgeting, forecasting, and profitability analysis.

Quickbooks profitability analysis

 

3. You're in the US

If you're based in the US, your accountant's main complaint might be lack of experience with Xero. QuickBooks is the market leader in the US, so they will likely be used to working with that. Xero is more common outside of the US, and UK and New Zealand accountants in particular will likely recommend it.

QuickBooks has been GAAP and IAS compliant for longer than Xero, and has been the preferred choice of many accountants for some time. It's also the market leader in several regions. All in all, it's unlikely that your accountant will have any issues with working with QuickBooks.


When to choose Xero

If you're looking for a QuickBooks alternative, Xero is one of your best options. It's a joy to use, affordable, and accountants love it. Here's how to know if it's the better choice for you.

 

1. You have a growing startup

Xero scales beautifully, both in depth of functionality and user experience. When you start using Xero as a small business or early-stage startup, you know it's going to support and evolve with you as your company grows.

There's excellent core functionality for processing invoices and payments as well as add-ons for projects, time tracking and expenses. Xero offers basic inventory management for retail businesses to track what they have in stock, add inventory to quotes and invoices, and report on what product lines are trending.

As your business grows, Xero should have your back all the way. Accounts & Legal Consultants shared how Xero successfully managed the accounting for one of their large clients with 50 stores in the UK. Xero told them that the soft limits for transaction volume are around 2000 sales, 2000 purchases and 4000 bank lines per month, after which Xero’s performance “deteriorates dramatically”.

Xero mobile app

 

2. You love minimalist user experiences

Back in the early 2010s, QuickBooks Online was criticized for its old-school user interface. Things have changed since then, however, and competitors like Xero have pushed QBO to rethink its user-experience. But it still has room to improve here.

There’s a reason why startups generally prefer Xero than QuickBooks Online: it looks better. It feels more modern and more user-friendly. Many users find Xero more enjoyable to use and love its easy-to-use and sleek interface.

As a 5/5 review of Xero on Capterra shares, "Xero makes reconciling fun". It sounds cliche, but we agree.

Xero dashboard

 

3. You're outside of North America

Although it's loved worldwide, Xero is especially well-known and used by accountants outside the US, especially in New Zealand and Europe.

Accountants praise Xero's automatic bank feeds, usability and simplified payroll. When it comes to doing your tax return at the end of the year, they have everything they need to get going. It's also easy for accountants to fix user errors in Xero, and there are built-in proper audit trails and safety checks.

As of 2017, you can also produce GAAP-compliant Statement of Cash Flows for your client reporting needs using Xero’s single integrated reporting solution.


Feature comparison of Xero vs. QuickBooks Online

Ease of setup and use

QuickBooks and Xero both have excellent dashboards that give you an easy glimpse of all of your main business metrics after logging in. Your best option here will probably come down to the user interface you enjoy using most.

We love QuickBook's simple yet customizable layout, offering a quick overview of profit and loss, expenses, bank account balances, invoices, and sales.

Quickbooks dashboard

 

Similarly, Xero has an equally user-friendly dashboard that's aligned with the minimalist vibe of the rest of their product:

Xero minimalist user experience dashboard

 

Both QuickBooks and Xero are easy to set up and offer a huge range of banking integrations for many regions. There used to be a bit more friction with Xero here, but now it's just as easy as QBO to sync your bank account.

That said, before you choose between Xero and QuickBooks, triple check that your bank is supported! You can connect your bank account during the trial period to make sure it's working 100%.

Each time you log into either app, you can see your latest balance and expenses that need reconciling from the dashboard.

As of the time of writing, Xero is rated 4.2/5 for ease of use on GetApp compared to QuickBooks Online's 4.1/5 rating.

Looking at customer support, both Xero and QuickBooks Online have room to improve. Community reviews on G2 give both Xero and QuickBooks a 7.5/10 for quality of support.

 

Invoicing

With either tool you'll get reliable features for processing invoices and quotes. Xero makes it easy to create invoices and preview before sending, although the system can occasionally be glitchy, at least in our testing.

Xero invoicing vs Quickbooks

 

QuickBooks makes it easier to update details about the client directly in the invoice, rather than having to navigate to their contact record:

QuickBooks Online invoices vs Xero

 

Expenses and bills

Both Xero and QuickBooks have excellent mobile apps, making it easy to scan receipts on the go to avoid paper piling up.

Xero makes it simple to categorize money in and out with its chart of accounts. It can take a bit of time to get your head around – and you might want to ask your accountant for advice on which accounts to choose for different use cases – but once you're familiar with it, you should be good to go.

With Xero Expenses, an add-on that's included in the Established plan if you're in the US, you and other employees can submit expenses, reconcile transactions and manage everything without paper receipts.

Xero expense management vs QuickBooks

 

QuickBooks also keeps managing expenses and bills simple. The chart of accounts is easy to manage, customize and track spend for each category.

With Quickbooks, expenses functionality is built into all plans rather than offered as an add-on (or gated behind higher plans) as with Xero. This can mean some small cost savings and extra simplicity if you have a small business.

Quickbooks expense management vs Xero

 

Reporting

Pulling reports based on date range, such as monthly P&L and balance sheets, is a breeze with QuickBooks Online.

Xero does add more customization in places, but is a little more clumsy with its reports. QBO has the advantage of more time on the market to evolve to their customers' precise needs and user flows.

The main Xero reports that stand out in 2020 are the Cash Flow Statement and Business Snapshot, which is currently in pilot mode and gives a simple and insightful look at your business's financial health:

Xero business snapshot report for 2020

 

For companies that need more than the standard Xero and QBO reporting can offer, they can make use of add-ons and integrations with both apps.

 

Integrations

When choosing the best accounting tool for your business, don’t overlook the importance of integration. Your accounting system is one of your core tools, and for maximum results you should integrate with your other systems.

Look for integrations with:

Xero and QuickBooks both offer a good number of integrations in their respective marketplaces.

When it comes to syncing your contacts between your apps – such as with your CRM – PieSync offers an easy two-way syncing solution to keep everything in order between hundreds of apps.

 

Accountant opinions

If you have an accountant, it's also worth checking if they have a preferred software – it's really helpful to have professionals who understand your software at tax time and help you get the most from the platform.

Both Xero and QuickBooks are well-loved by accountants, and their preference might come down to location. QuickBooks is the market leader in the US, while Xero is a favorite for Europe and New Zealand.

 

Scalability and suitability for different business sizes

As we talked about earlier, QuickBooks is a great low-cost choice for freelancers and small businesses, while Xero is popular with growing startups.

But what about larger businesses and enterprise-level companies?

Xero caters to slightly more mid-market companies with 51-1000 employees than QuickBooks Online. For larger businesses and enterprise-level companies that need more transparency, power, and insights into sales margins, a better alternative will likely be a more advanced accounting system or ERP like Sage Intacct or NetSuite.

Xero vs Quickbooks accounting for different business sizes

 

As a larger business, you can also look into Intuit's wider software suite, including QuickBooks Enterprise Solutions, which claims to have 6x the capacity of other QuickBooks editions. The Enterprise edition scales up to 30 users, supports up to 1 million list items, and offers advanced reporting, inventory and printing.


Pricing comparison of QuickBooks Online vs. Xero

If you need to track income, expenses, invoices and time, you'll likely be paying $35/month for QBO or $60/month for Xero. For the top plans, you'll get similar functionality from both providers.

 

Xero pricing

Xero offers three pricing tiers, ranging from $9 per month to $60 per month.

Xero pricing plans August 2020

 

Xero's most basic plan (Early) comes at a tempting $9/month, but you're very limited with the feature set. You can only send 5 invoices and quotes, enter 5 bills and reconcile 20 bank transactions. For most businesses, this isn’t going to be enough.

Their mid-price plan (Growing) will fit most small businesses. You can send invoices and quotes, enter bills and reconcile bank transactions for $30/month.

For the full feature set, you’ll need Xero’s top plan (Established). For $60/month you get all of the Growing features plus multi-currency functionality, expenses (to capture and manage claims), and projects (to track project time and costs).

If you want access to their Gusto full-service payroll (available across all 50 states for US customers), pricing starts at $39/month base + $6/month per person.

If you're outside North America, you can access country-specific payroll as an add-on in some regions, including the UK.

 

QuickBooks pricing

You can get started with QuickBooks Online from $25 per month as the lowest of three price plans.

QuickBooks Online pricing August 2020

 

QBO’s basic plan (Essentials) starts at $25/month. This comes with much more functionality than Xero's cheapest plan, including all the basics of tracking income and expenses, capturing and organizing receipts, invoicing and accepting payments. You also get access to basic reporting. The main limitation of QBO’s Essentials is access for only one user. You also can't track time and inventory.

Many businesses will go for the Plus plan at $70/month, with all of the above features as well as access for up to five users, time tracking, inventory, and access to more reporting including for project profitability.

As expected, the fancy features come in the top plan: Advanced for $150/month. This gives you access to features such as batch invoices and expenses, automated approvals and reminders, management reports and fields, and custom reporting fields.

For payroll, you have three choices of add-on: Payroll Core, Payroll Premium and Payroll Elite, ranging from $45 + $4/employee/month to $125 + $10/employee/month.

All plans also include receipt capture, expert support, and out-of-the-box integrations.


Summary: when to choose Xero vs. QuickBooks Online in 2020

Both QuickBooks and Xero are excellent accounting systems for small businesses, and customer reviews reflect how well the software providers understand their audiences.

Here's a quick summary of when to choose QuickBooks Online versus Xero, based on where the two systems excel:

When to choose QuickBooks OnlineWhen to choose Xero
You want a lot of value at a low price pointYou have a growing startup
You want advanced reportingYou love minimalist user experiences
You're in the USYou're outside of North America

 

Want to compare other popular accounting software with QuickBooks and Xero?


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About Lucy Fuggle

Lucy Fuggle writes for PieSync, the two-way contact sync tool for hundreds of apps. She also works with her clients to make their brand matter with a content-rich marketing strategy.