Introduction
Every missed receipt is money left on the table. For small businesses using Xero, expense tracking is one of the most powerful — and most underused — features in the platform. Get it right, and you’ll have an audit-ready, tax-optimized record of every dollar your business spends. Get it wrong, and you'll be scrambling through bank statements every time your accountant asks a question.
This guide covers everything you need to know about tracking expenses in Xero: how the native tools work, where they fall short, and how ExpenseMonkey’s Xero integration fills the gaps.
Related Reading
→ Best Expense Apps for Xero in 2026: Full Comparison
→ How to Automate Expense Reimbursement in Xero
→ Xero Pricing Plans
Why Expense Tracking in Xero Matters
Accurate expense tracking in Xero delivers three core benefits that directly affect your bottom line:
• Tax deductions: Every legitimate business expense is a deduction. Without tracking, you’re overpaying tax on money you already spent.
• Audit protection: Xero creates a timestamped, categorized record for every transaction. If the tax authority comes knocking, you're covered.
• Cash flow visibility: You can’t manage what you can't see. Real-time expense data shows exactly where money is going, so you can make better decisions faster.
Which Xero Plan Includes Expense Tracking?
This is the most common source of confusion for new Xero users. Expense claims are only available on Xero’s Established plan, which is the highest tier at around $80/month in the US. The Early and Growing plans do not include expense claim functionality at all.
If you’re on one of those lower plans and trying to find the Expenses tab, it won’t be there—you'll need to upgrade or use a third-party expense app that integrates with Xero. This is one of the main reasons small businesses turn to dedicated expense tools: they can get full expense management without upgrading their entire Xero subscription.
Setting Up Expense Claims in Xero: Step by Step
1. Log in to Xero and navigate to Settings > General Settings > Expense Claims.
2. Enable expense claims and set default account codes for your expense categories.
3. Invite employees to Xero Me — Xero’s companion mobile app for submitting expenses.
4. Set up expense categories (chart of accounts) relevant to your business: travel, meals, office supplies, etc.
5. Configure approval settings: who can approve and whether approval is required before reimbursement.
Capturing Receipts with the Xero Me App
The Xero Me app lets employees photograph receipts on the go and submit expense claims directly from their phones. Key features include the following:
• Receipt photo capture with basic OCR (optical recognition) to pre-fill claim details
• Mileage tracking using the device’s map
• Multi-currency support for international expenses
• In-app approval for managers with the right permissions
In practice, the OCR can be hit and miss—particularly with low-quality photos or non-standard receipt formats. This is one area where third-party expense apps consistently outperform the native Xero tooling.
The Expense Approval Workflow in Xero
6. Employee submits an expense claim via Xero Me or the Xero Web app.
7. An approver (usually a manager or finance admin) reviews the claim.
8. The approver accepts or declines. If accepted, the expense is recorded in Xero.
9. Finance processes reimbursement via payroll or a direct payment.
Xero’s native workflow is straightforward for small teams, but it lacks multi-level approval (e.g., line manager, then finance director) and policy enforcement. If an employee submits a $500 client dinner, there’s no automated check against your $150 per-person policy.
Where Native Xero Expense Tracking Falls Short
• Expense claims locked behind the top-tier plan—a significant cost hurdle for smaller businesses
• No customisable mandatory fields—employees can submit incomplete expense claims
• Limited receipt OCR accuracy compared to specialist tools
• No multi-level approval workflows
• No spend policy enforcement or automatic flagging out-of-policy expenses
• Basic reporting — limited visibility by project, department, or employee
How ExpenseMonkey Fills the Gaps
ExpenseMonkey is a dedicated expense management tool built to work alongside Xero, not replace it. It connects directly to your Xero account and syncs all approved expenses in real time, so your accounting stays clean without manual data entry.
• Works with all Xero plans — no need to upgrade
• Smarter AI-powered receipt scanning with higher OCR accuracy
• Flexible approval workflows
• Spend policy enforcement: set limits and auto-approvals
• Richer reporting: filter by employee, project, department, date range, and more
• Clean two-way sync with Xero — categories, tax codes, and tracking categories all respected
Ready to get started?
Connect ExpenseMonkey to your Xero account today and start tracking expenses properly—without upgrading your Xero plan. Try it free for 14 days.
