Ignition is introducing Net Settlement, a new method for processing payment collection fees. This change simplifies your payment reconciliation process by deducting payment fees immediately from each client payment, rather than consolidating them into a single monthly invoice.
This article explains how net settlement works and provides guidance on what you need to know and the steps to set up even more accurate and streamlined reconciliation in Xero.
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Net settlement
Net settlement is our new payment fee processing method, where your payment fees for each payment collection are processed separately and immediately on each payout, rather than compiling them each month on your Ignition invoice.
This means that you will no longer pay fees at the end of the month. Instead, they will be deducted from each payment collection.
With Net Settlement, Ignition automatically creates the extra entries your books need, marking each invoice paid in full and recording the payment fee as its own expense, so your existing bank rule can still reconcile the payout to zero without any manual adjustments.
How does invoice reconciliation work?
If you have Xero connected with Ignition and would like to use different expense accounts, you can choose your own under Account mapping.
Navigate to your Settings â Integrations â Xero tab and select Account mapping.
Under Account mapping, you will see Sales, Ignition payment fees, and Stripe Capital financing costs (only if you are eligible for Stripe Capital).
Select the accounts you would like for Sales and Ignition payment fees, then click Save.
Once you select an Ignition payment fees account, Ignition will continue to automatically match your payments every time you are paid.
Pro tip: Click the "Sync" button at the top of the Account mapping modal before selecting accounts. This ensures the dropdown lists reflect your current Xero chart of accounts.
Setting up bank rules in Xero
You will need two bank rules in Xero. These rules route your Ignition payouts to the Ignition Clearing Account, so Ignition can automatically match your invoice payments and payment fees against your bank feed and reconcile everything to zero.
Note: If you already reconcile Ignition payouts in Xero today, you likely already have the first rule below set up. Net settlement adds the second rule to handle payouts where refunds outweigh collections.
How to set up rule 1 - Money In
Create a new Receive Money rule with the following settings:
Rule type | Receive Money, in all bank accounts |
Condition | Description contains |
Account | Ignition Clearing Account |
How to set up rule 2 - Money Out
Create a second rule with the same matching details, applied to Spend Money instead:
Rule type | Spend Money, in all bank accounts |
Condition | Description contains |
Account | Ignition Clearing Account |
This second rule is new to net settlement. It's needed because a payout can occasionally net to a withdrawal instead of a deposit, for example when refunds in a batch outweigh the invoice payments collected.
How payments are reconciled
1. Your invoice is paid
You send an invoice through Ignition and the invoice is synced to Xero.
When your client pays, Ignition marks the invoice as paid in both Ignition and QuickBooks.When your client pays, Ignition marks the invoice as paid in both Ignition and Xero.
Ignition also creates a Payment Fees bill in Xero for the transaction fee, and marks it paid. If a payout includes more than one invoice payment, their fees are bundled into a single Payment Fees bill. You'll see at most one fee bill per payout (one per day), not one per invoice.
This is new to net settlement, since fees are no longer billed separately at the end of the month.
3. Your payout reaches your bank account
The invoice payment and the Payment Fees bill are both paid from the Ignition Clearing Account, Ignition's dedicated account for tracking payouts that haven't yet cleared your bank.
When Ignition sends your payout, it appears as two separate transactions (the invoice payment & the payment fee).
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4. Ignition reconciles everything automatically
The payout transaction is matched by your Ignition Clearing Account bank rule on Xero's Reconcile screen.
Once you click OK to run the rule, the payout posts as a transfer into the Ignition Clearing Account. The invoice payment and payment fee together account for the same amount as your payout, so the account balances back to zero.
Things to know
The Ignition Clearing Account is created automatically. The first time you receive an Ignition payout, Ignition creates this account in your Xero chart of accounts if it doesn't already exist.
Two transactions instead of one. Where gross settlement only ever posted your invoice payment, net settlement also posts a Payment Fees bill for the fee amount. Both net out against your payout.
Auto-reconcile. If you have Xero's "Turn auto-reconcile on" setting enabled, matching bank rules can apply automatically, so you don't need to click OK on every payout.
Important: Don't rename or delete the Ignition Clearing Account in Xero. Doing so will break automatic reconciliation. If you run into reconciliation issues, check this first.
Refunds and Reversals
A reversal is any time money moves back the other way, such as a refund, a failed payment, or a disputed charge. Under net settlement, reversals are handled automatically wherever possible.
Refunds
If you refund a client's invoice, Ignition removes the original invoice payment from Xero. The payment fee bill for that transaction is not reversed, since Ignition's processing fee still applied when the payment was originally collected.
If the refund happens on a different payout than the original payment, you will see the invoice payment removed once the refund is processed, with the payment fee bill unaffected.
If the refund happens on the same day and within the same payout as the original payment (uncommon), Ignition does not push the invoice payment to Xero at all. You will only see the payment fee bill for that transaction, since there is no other money movement to record.
Failed payments
If a payment fails after it was collected, for example an ACH payment that is later declined, Ignition removes both the invoice payment and the associated payment fee bill from Xero. Your invoice returns to unpaid so it can be collected again.
Chargebacks and disputes
Chargebacks are the one exception. If a client disputes a payment:
Ignition records the dispute and notifies you
No accounting entry is created automatically in Xero
If the dispute is ultimately lost, you'll need to record the appropriate adjustment in Xero yourself