Xero versus FreeAgent in 2021

 In General

Cloud computing has revolutionised the world of business in many ways. One of the most direct has been accounting. The cloud offers a compelling combination of added functionality, automation mobility and simplicity that makes it ideal for businesses and contractors alike.

At 3Wise Bears we use two of the leading platforms for our sole trader and limited company clients: FreeAgent, and Xero. Both provide an attractive mix of simplicity, affordability and performance, but they differ slightly. In this blog we look at the features and help you decide which one you should choose.

Xero features

One of the biggest accounting systems for small businesses, this provides a mobile platform allowing you to access your accounts from anywhere, reduce admin and get a clear view of your true financial position.

Features include:

  • Financial information: This gives you a clear view of all your financial information in one place. You can track invoices, check expenses, pay bills and analyse cash flow. It also connects with your bank which means all transactions in your bank are instantly visible in your accounts.
  • Doing tax: This takes the weight of tax compliance off your shoulders. It prepares VAT returns and does everything you need to file your tax on time. All your payroll is managed automatically with HMRC recognised software.
  • Payments: You can manage invoices and give clients the opportunity to pay online. You can also quickly create and send purchase orders online and send invoices in clear templates and provide highly impressive and professional-looking quotes.
  • Claim expenses: Easily track, claim and approve all expenses much more quickly.
  • Customer interaction: Smartlists allow you to keep a full history of your interactions with clients. It lets you see buying history, invoices, payments and much more.
  • Data and reports: You can use it as an online filing system simplifying your admin and giving you an enhanced view of your data. It helps you to take a deep dive into what the data is telling you and make better decisions based on the best information.
  • Mobile app and app marketplace: You can access Xero on the go via its mobile app and also connect it to a vast amount of apps that can produce custom reports and link into your payroll or stock inventory systems.

FreeAgent features

FreeAgent is a great solution for small businesses but is particularly accessible for freelancers. This is the platform we use for all our self-employed clients. The platform gives you a bird’s eye view of your accounts. It lets you see exactly what’s coming in and going out, shows you where you’re making or losing money, manages complex projects and reduces admin time.

Features include:

  • Invoices: Invoices can be sent online and payment reminders generated automatically. You can also get paid faster by offering online invoice payments.
  • Expenses: Record expenses on the go and track business costs easily. This saves a lot of time when it comes to doing your tax.
  • Estimates: Create estimates quickly in clear templates. Manage projects from start to finish and track your time.
  • Payroll: Manage your payroll with HMRC compliant software meaning you satisfy all your making tax digital requirements.
  • Mobile app: The FreeAgent mobile app allows you to keep track of your accounts wherever you go. The platform keeps all data secure in manned data centres which are physically separated to reduce their exposure to attack or natural disaster. It is certified for cyber essentials standards.

Comparing the two

Both these platforms do many of the same things. They are both cloud based and both have mobile apps allowing you to access the platform on the go. You can raise invoices, get paid online and reduce admin of doing your tax.

Of course, both are recognised by HMRC so are compatible with Making Tax Digital.

However, Xero offers more in the way of features and is more suitable for small and medium sized businesses. For example, it uses artificial intelligence to spot transactions and notes what you did with them. It might then set a reminder next time it sees the same transaction asking if you intend to do the same thing again. Alternatively, you can create a rule which says: ‘if this happens, do this’. Eventually, the AI will start to automate many of your key functions.

It also has excellent reporting tools. This is important because what gets measured gets managed. Many businesses fall down on this rather basic issue. However, building up reports allows you to achieve a better idea of your true financial position, make better forecasts and make better business decisions.

FreeAgent, on the other hand, is smaller and simpler to use making it ideal for freelancers, contractors and micro-businesses. It stands to reason you won’t need to access as many of Xero’s more demanding features. You just need something which is clear, affordable, simple to use and helps you take control of your finances.

The ability to automate key tasks, track invoices and expenses will be invaluable for freelancers. This will help to minimise admin and maximise your time spent on billable tasks. In addition, the ability to accept payments online will make it easier for your clients to pay you which will in turn free up cash flow and reduce the time spent chasing unpaid invoices.

Which is best?

These articles often come down to people asking which one is best. It depends on what you’re looking to do. Both platforms do what you need them to. They simplify accounts, make them more accessible to everyone and allow you to work on them remotely.

For companies, Xero has more features and is more suitable to the heavier demands of a growing business. FreeAgent, meanwhile, is simpler, more streamlined and easy to use. It offers everything a small micro business or contractor could want.


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