Most established e-commerce businesses accept payments through at least two gateways — Stripe for cards, PayPal for buyers who prefer it, Klarna for buy-now-pay-later. Each generates its own bank feed, deducts its own fees, pays out on its own schedule, and none of them talk to each other.
The Central Problem: Gross vs Net Accounting
Every payment gateway pays you net — after deducting its fees. Your Xero bank feed shows net amounts. Your Shopify or WooCommerce dashboard shows gross order values. They will never match unless you gross up the gateway receipts and record fees separately.
The correct treatment: record the full (gross) sale as revenue at the time of the order. Record the gateway fee as a separate expense. The net received from the gateway matches to the bank feed. This keeps your revenue accurate and fee expense visible.
Reconciling Stripe in Xero
Stripe pays out net of fees (1.5% + 20p for UK cards, 2.5% + 20p for non-UK European cards). Xero has a native Stripe integration creating a clearing account between your bank account and revenue accounts. Each Stripe payout transfers from the clearing account to your bank; individual transactions flow into the clearing account from the correct revenue or expense accounts.
For high-volume businesses, Synder automates the clearing account process and fee mapping (around £30-£60/month depending on volume).
Reconciling PayPal in Xero
PayPal is more complex because the PayPal balance is itself an asset — you may hold funds there for days or weeks. Create a "PayPal Account" bank account in Xero (not a clearing account — a bank account, because you actually hold a balance there).
- PayPal holds: funds sitting in your PayPal balance that aren't yet withdrawable need tracking in the PayPal bank account — they're still your money
- PayPal fees vary by transaction type: standard payments (2.9% + 30p), PayPal Here, and invoicing all differ
- Currency conversion: PayPal applies its own exchange rate, creating gains or losses needing separate treatment
- PayPal disputes: a chargeback can freeze funds for 30+ days — track as contingent liabilities until resolved
Reconciling Klarna in Xero
When a customer buys via Klarna, you receive the money from Klarna immediately — minus Klarna's fee (typically 0.99p + 2.49% per transaction). Klarna collects from the customer over their repayment period. Klarna pays out every two weeks (or weekly for high-volume merchants), netting multiple orders into a single bank transfer.
Correct reconciliation: create a Klarna clearing account in Xero. Each Klarna-facilitated sale posts gross revenue to this account. Klarna fees post as expense from this account. The net payout transfers from clearing account to bank. The clearing account balance should be near zero after each payout.
Multi-Gateway Monthly Reconciliation Process
- Match each Shopify Payments bank feed entry to its A2X or Link My Books payout summary
- Reconcile the Stripe clearing account: match bank payouts to Stripe clearing account balance
- Reconcile the PayPal bank account: import PayPal transactions, match to bank withdrawals
- Reconcile the Klarna clearing account: match bank payouts to Klarna clearing account balance
- Cross-check: total revenue in Xero should equal total platform revenue — timing differences aside
- Reconcile unmatched items: returns, disputes, held funds, or cross-month timing differences
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All guides on this site are reviewed for technical accuracy by qualified accountants in our network before publication.