Xero Bank Reconciliation Software: Automate Your Bookkeeping with AI
Stop manually coding Xero transactions one by one. There's a faster way to reconcile bank statements, classify VAT, and post everything back to Xero.
Xero's bank feeds are brilliant at pulling transactions in. But that's where the automation ends. Every transaction still needs a category, a VAT code, and someone to click "OK." For practices handling dozens of clients, that means hundreds of hours spent on work that feels like it should be automatic by now. We built CodeIQ and ReconcileIQ to close that gap -- connecting directly to your Xero account, learning your general ledger patterns, and handling the coding, VAT classification, and posting that bank feeds were never designed to do.
The Problem with Xero Reconciliation
Xero's bank feed integration is genuinely useful. Transactions flow in daily, suggested matches appear in green, and the interface is clean enough that the work feels manageable -- until you multiply it across fifteen or twenty clients.
Where the Manual Work Hides
Transaction Coding
Every bank feed transaction needs assigning to an account in your chart of accounts. Xero's "Create" rules help with recurring merchants, but they cover a fraction of real-world transactions. The rest require a human to read the description, decide the category, and select from a dropdown. Across a full bank statement, that's easily 30 to 60 minutes of focused, repetitive work per client.
VAT Classification
Getting the VAT code right matters. Xero supports a wide range of tax codes -- NONE, INPUT2, OUTPUT2, RRINPUT, RROUTPUT, EXEMPTINPUT, EXEMPTOUTPUT, ZERORATEDINPUT, and more -- and each transaction needs the correct one. Misclassifying a zero-rated purchase as exempt, or forgetting to apply reverse charge on a foreign supplier, creates problems that surface months later during a VAT return. Manual classification at speed inevitably introduces errors.
Invoice and Transfer Matching
Outstanding invoices need matching to payments. Transfers between bank accounts need pairing so they don't appear as unexplained income and expenditure. Xero's matching suggestions are helpful for exact amounts, but partial payments, fees, and timing differences mean plenty still fall through.
For a practice running 20 Xero clients, transaction coding alone can consume 15 to 25 hours per month -- before you account for VAT corrections and invoice matching. That's a part-time role dedicated entirely to data entry.
How CodeIQ Automates Xero Bookkeeping
CodeIQ is an AI bookkeeper that connects to your Xero account, learns how you code transactions, and does the work for you. It runs a multi-phase processing pipeline that handles the entire workflow from bank statement to posted, reconciled transactions. Here's the process, step by step.
Step-by-Step: From Statement to Posted
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Connect Your Xero Account: Authorise via OAuth. CodeIQ reads your chart of accounts, VAT codes, and outstanding invoices -- everything it needs to code transactions the way you would. Your credentials never touch our servers; the connection uses Xero's standard OAuth 2.0 flow.
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Upload a Bank Statement: Drop in a CSV, PDF, or Excel file from any bank. CodeIQ auto-detects date, description, and amount columns. If you prefer, you can also pull transactions directly from Xero's bank feed data.
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AI Processes Every Transaction: The pipeline runs seven phases: transfer detection (matching equal and opposite amounts across accounts), invoice matching against your outstanding Xero invoices, historical pattern matching from your Xero GL, universal pattern matching from our crowd-sourced merchant database, MCC category matching, semantic analysis for anything the patterns miss, and finally your personal corrections from previous sessions. VAT is classified automatically across all Xero tax codes.
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Review and Post Back to Xero: Everything is presented for review -- account assignments, VAT codes, invoice matches, and detected transfers. Approve individually or in bulk, then post back to Xero with one click. Standard transactions use Xero's BankTransactions API, transfers use BankTransfers, and invoice payments use the Payments endpoint.
Most clients see their entire bank statement coded in under two minutes. The review step is where you spend your time -- confirming the AI's work rather than doing the work yourself.
What Makes This Different from Xero Bank Rules
Pattern Learning from Your Xero GL
Xero bank rules are static: you set a condition, it applies a category. CodeIQ learns dynamically from your existing general ledger history. When you connect a Xero account, it analyses how you've previously coded transactions for that client and applies those same patterns to new ones. The more history, the better the accuracy -- and it adapts as your coding changes over time.
Universal Pattern Network
Beyond your own GL, CodeIQ draws on a crowd-sourced database of anonymised merchant-to-account patterns contributed by other practices. When a new merchant appears that you've never seen before, chances are another accountant has already coded it. That pattern is available to you immediately, with no setup required.
Full VAT Classification
CodeIQ classifies VAT semantically, not just by merchant name. It understands the difference between standard-rated office supplies and zero-rated food from the same supermarket. For Xero, it maps directly to your available tax codes -- INPUT2 for standard purchases, RRINPUT for reverse charge, EXEMPTINPUT for exempt items, ZERORATEDINPUT for zero-rated purchases -- and handles the net and VAT amount calculations automatically.
Invoice Matching and Transfer Detection
CodeIQ matches bank transactions against your outstanding Xero invoices, handling partial payments and small fee adjustments. It also detects transfers between your bank accounts automatically, pairing them so they don't pollute your profit and loss. Both are handled before the coding phase even begins, so your review screen is already clean.
Working with Xero Bank Feeds
If your Xero clients have bank feeds connected, CodeIQ works alongside them rather than replacing them. Posted transactions appear in Xero as suggested matches -- the familiar green items in the reconciliation screen -- ready for a one-click "OK" to confirm.
One technical note: Xero's API does not support setting the reconciliation flag on transfers (BankTransfers) or invoice payments (Payments). These will always appear as suggested matches requiring manual confirmation in Xero, regardless of any software. This is a Xero platform limitation that applies to all third-party integrations, not just ours. Standard transactions (BankTransactions) can be posted as fully reconciled when bank feeds are not connected.
ReconcileIQ: Statement-Level Reconciliation for Xero
While CodeIQ handles the transaction-by-transaction bookkeeping, ReconcileIQ handles a different problem: verifying that your Xero records match your actual bank statement. Upload your bank statement and your Xero export, and ReconcileIQ matches them -- tolerating date differences, fuzzy description matching, and identifying discrepancies that need investigation. It also connects directly to Xero via OAuth, so you can pull bank account data without manual exports.
Frequently Asked Questions
What is the best software for Xero bank reconciliation?
The best Xero bank reconciliation software combines automated transaction coding with direct Xero integration. The IQ Suite offers two complementary tools: CodeIQ, which uses AI to learn your general ledger patterns and automatically code transactions, classify VAT across all Xero tax codes, match invoices, and post back to Xero; and ReconcileIQ, which handles statement-to-book matching with tolerance for date differences and fuzzy description matching. Together they reduce manual reconciliation from hours to minutes per client.
How do I automate Xero bookkeeping?
Connect your Xero account to CodeIQ via OAuth. Upload a bank statement and CodeIQ's AI engine runs a multi-phase pipeline: it detects transfers between accounts, matches transactions to outstanding Xero invoices, applies patterns learned from your Xero general ledger history, classifies VAT automatically, and presents everything for review. Once approved, transactions post directly back to Xero. For clients with bank feeds, posted transactions appear as suggested matches for one-click confirmation.
Can AI automatically code Xero transactions?
Yes. CodeIQ uses a seven-phase AI pipeline to automatically code Xero transactions. It learns patterns from your existing chart of accounts and GL history, then applies transfer detection, invoice matching, universal crowd-sourced merchant patterns, MCC category matching, and semantic analysis. The system also learns from your manual corrections over time, improving accuracy with each session. VAT is classified automatically across all Xero tax codes including INPUT2, OUTPUT2, RRINPUT, EXEMPTINPUT, and ZERORATEDINPUT.
What tools integrate with Xero for bank reconciliation?
Several tools integrate with Xero for bank reconciliation, but most only handle matching. The IQ Suite provides deeper integration through CodeIQ, which connects via OAuth to read your chart of accounts, VAT codes, and invoices, then posts coded transactions back using Xero's BankTransactions, BankTransfers, and Payments APIs. ReconcileIQ offers direct Xero bank account import for statement-level reconciliation with discrepancy detection and resolution workflows.
Ready to Automate Your Xero Bookkeeping?
Connect your Xero account, upload a bank statement, and let CodeIQ handle the coding, VAT, and posting. Most statements are processed in under two minutes.
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