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Managing your Xero subscription

Following a recent dispute between a small business owner and his accountant in Australia, we thought it would be timely to provide a reminder about the way that subscriptions work under Xero’s Terms of Use.

Disputes in business happen all the time and in this specific case the issue was not actually related to Xero but more to do with services charged for implementing Xero along with a more complex add-on solution.

With over 280,000 customers we’re pleased that we’ve only seen a handful of these types of issues and generally we are able to work with and encourage the parties to work towards a resolution. Regardless, as small business moves to the cloud we’re keen to raise the discussion so the accounting and bookkeeping profession is best equipped for the technology changes we’re all experiencing.

The Xero accounting platform helps accountants and bookkeepers provide more advanced services to their clients through the ability to easily access and work with the client’s data in real time.

We fundamentally believe that small businesses do better if they have accountants and bookkeepers working alongside them. However, we don’t mandate that relationship and accordingly offer a flexible subscription model.

The small business owner and the advisor can decide how to structure the subscription depending on the needs of the client. The advisor can set up a subscription in Xero and incorporate (often called ‘bundling’) the Xero subscription fees into their service fees that are charged to the small business as their client. In this way the advisor becomes the “Subscriber”. Alternatively, the small business owner can hold their own subscription and pay Xero directly for the subscription fee. In this way the small business owner becomes the “Subscriber”, and can invite their advisor into the subscription as an “Invited User” (a user with certain access rights set by the Subscriber).

All users of Xero accept the same Terms of Use. The Terms of Use state that the “Subscriber” for a Xero subscription controls access to that subscription. The Subscriber also determines the level of access that other “Invited Users” have to the Xero subscription.

When it comes to using Xero, small business owners should consider who they wish to act as “Subscriber” in relation to the Xero subscription. A small business owner can register for Xero themselves and assume the “Subscriber” role, and limit the accountant’s involvement to that of “Invited User”.

A good accountant or bookkeeper will provide terms of engagement and a fee agreement before starting any work for a small business owner. The terms of engagement should clearly state each parties’ rights and responsibilities around the Xero subscription, along with the level of fees, service delivery expectations, and so on.

A good accountant or bookkeeper should also provide a small business owner with regular updates on the fees that have been charged. Small business owners should ask their accountant or bookkeeper for this information if it is not provided regularly. If a client has concerns about the level of fees being charged by their accountant or bookkeeper while the work is being carried out, they should talk to their accountant or bookkeeper first. If they are unable to resolve the situation with their accountant or bookkeeper, the small business owner should contact one of the relevant professional bodies in their country.

We are working on guidelines to help the relationship between small business owners and their accountants or bookkeepers in relation to cloud accounting software. This is an interesting area. We have raised the issue with relevant industry bodies and over the next few months will progress this as a project.

We’ll update you as we make progress.

We’re keen to hear any of your thoughts and concerns as we kick off this piece of work.

Please feel free to discuss below.

 

 

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27 comments

Heather Smith
24 April 2014 #

Thanks for highlighting this issue @Chris. I actively let my clients know the terms and conditions around the Xero subscription. About 5% choose to take it up themselves, while the remaining, where happy to process the payment through me, understanding I make a small margin on the subscription.

Caveat emptor

@CJ_NZ
24 April 2014 #

I dont think your response and current practice is acceptable.

A company is required to keep its accounting records for a number of years for a variety of purposes, including as required by tax legislation.

If the accountant, or any other person, is the subscriber and can withhold a companies financial information from them at any time, then the company is not fulfilling its legal obligations.

In situation where the subscriber withholds a companies accounting records, Xero needs a procedure where the company, the true owner of the information, can regain access, maybe via some Director certificate. Some form of data restore should also be available should the subscriber delete historical data with malice prior to this action being taken.

To summarize, your current practice is not sufficient as it does not enable a company to fulfill its legal obligations.

Furthermore, it may also mean Xero is in breach of its approval from Inland Revenue in relation to cloud data being held outside New Zealand as you cannot guarantee a company has access to its own data.

Dan Fairbairn
24 April 2014 #

Very good clarification, although we don’t actively hold subscriptions this is something I might pass on to all clients to raise awareness prior to our implementations.

August
24 April 2014 #

Interesting view by Xero to allow accountants to hijack customer data. I’m actually an accountant myself. If the accountant stops paying the bills, is hit by a bus, etc Xero’s position is that all that accounting data (required for lots of legal and tax reasons) is lost.

An INCREDIBLE position, and very very scary. It goes to show you have to be very careful with these cloud companies. “Your” data may be sold, held hostage etc it seems almost at whim.

Google apps and most other reputable services have features that allow for the recovery / reset of account login information when needed. This is actually not that uncommon, as a consultant or tech staff person may quit or be laid off before turning over credentials.

Additionally, they have a nice feature which allows data recovery for a period after it is deleted – again to protect against disputes allowing someone to delete a companies entire records.

Again, very scary to here how Xero leaves a company unprotected.

Mike Porter
24 April 2014 #

Worthy debate.
Maybe mistakenly, but I believe it’s a no brainer, the end user (client) should own their information and on request be able to sever the Xero to professional adviser (PA) licence. It shouldn’t stop the set up and bundling process between Xero and the PA, it’s just that the small print within the licence between the professional advisor and Xero should grant severance rights to their client in the event of a request directly from the company. Xero’s company data should not be used as leverage in a dispute. Period. There will always be a number of small businesses that don’t read the small print and could find themselves in the situation outlined with a rogue PA (allbeit it’s very rare indeed). I don’t see a good reason why PA’s would be concerned by allowing this change in licence control and everyone has peace of mind. Xero could simply insert a clause in the event a directors resolution is received (or some appropriate instrument). I’d be interested to hear why the PA community would be against such a provision, as well as Xero’s view in the above context.

Cassandra Scott
24 April 2014 #

Thanks for taking the time to address this Chris – the article in reference is being widely circulated, and is the cause of much discussion in many forums.

One of the key issues that seems to be overlooked is that the ownership of data to the subscriber is not unique to Xero. Other providers of accounting software also vest ownership of the data to the subscriber or owner of the software. This dispute is not unique to Xero – I’ve certainly seen it first hand with other accounting products.

The other key issue that is overlooked is that of the clients responsibility in this matter, but also the ethics and integrity of a service provider that chooses to hold a lien over a clients information. I’m sure all the relevant Professional Associations would consider this to be unethical, and against their Codes of Professional Conduct.

@CJ_NZ, you are certainly correct in your statement about the retention of financial records to meet tax legislation requirements. I actually think the Xero platform more fully supports that than platforms where data files are retained on the internal servers of Professional Service Providers. Even in the event of a dispute, Xero will hold your records for 7 years, even if your subscription is terminated. A small fee to Xero for re-instatement of the subscription, will see your financial records immediately available to you. Try getting that sort of information from a product that requires data files to be stored and maintained on an accountants computer system.

What would be the optimal solution to this circumstance? For me, having a clear dispute resolution path with Xero, so that in the event that a Service Provider chooses to restrict a client’s access to the organisation, that the client does have some means of working through the process to access. We need to ensure though, that both the client and the subscriber are protected through this process, rather than just allowing total vilification of the accountant, when perhaps there is more to the story than what we see.

Peter Morgan
24 April 2014 #

And how is this different from an accounting firm that pays for and holds, for example, MYOB licences for itself to process client company data on behalf of its client? In the cloud or otherwise? In the event of a fall out, and a belligerent accountant not allowing the client access to its records the position is exactly the same. It’s just in this case Xero is part of the accounting solution, but it could just have easily been any of the others. This is out there purely as a mischievous competitive play by Xero’s competitors, who are all open to exactly the same issues, in my opinion.

Rob T
24 April 2014 #

This seems to be just the tip of the iceberg. The whole Xero product matrix is setup for accountants and bookkeepers (possibly as a way of creating client tie-in). While a small business can take out its own subscription, there seem to be quite a few features it then can not access, such as submission of files to the ATO. Similarly, if it takes out its own subscription and then invites its external accountant in as a user, the most useful user mode is “Adviser”, but that is almost equivalent to Unix root. The external accountant then has the power to invite and delete any user, etc, etc. Is that what small business owners really want? (I wouldn’t give an external accountant, lawyer or other professional that power over my data – but then I’m in the fortunate position of not needing to do so.)

Xero either needs to change its stance on these issues – unlikely would be my guess – or be a heck of a lot more honest in its marketing that whilst a small business can subscribe in its own right, the product isn’t really designed, or fully supported, for that. (Where, for example, are the limitations of self-subscription explained on the “Small Business” tab of Xero’s web page?)

Frankly, it doesn’t matter if other products have similar issues. Xero is, after all, trying to create a new standard in small business accounting.

Come on Xero, you can do it if you so choose!

(Don’t get my wrong, Xero is a great product – but it can be even better.)

Timothy Munro
24 April 2014 #

Sorry Sholto, I disagree with you. Any accountant can exercise a right of lien over certain documents they hold that may belong to the client. Fee disputes are nothing to do with Xero.

From the story it appears that the client always had uninterrupted access to and use of Xero during this time. So the accountant didn’t restrict anything. The client was not inconvenienced in any way.

The accountant merely exercised their right of lien. A legal right that accountants have used for years.

Hmmmm… Disputes will always happen. Avoid this with a very clear Fee Proposal and the accountant should request up front payment before work starts. Problem solved!

Hey – No different to an accountant withholding an updated MYOB data file from a client that hasn’t paid their bill.

Rod Drury
24 April 2014 #

This is a good discussion and thank you for your comments.

@Heather thanks

@Dan good practice

@CJ: Access to the Xero file is not an issue. In the case publicised in the Australian press recently, the business owner has had, and continues to have, access to the file. This means that the business owner has been able to continue to use Xero, which would allow him to fulfill his legal obligations. What has happened is that the accountant has wanted to hold onto the Xero subscription until he was paid. The effect of this is that the business owner can still access the Xero file, but the new accountant cannot.

@Mike: Xero does not leave small business users unprotected. Files are not deleted. If a Xero subscription is closed for any reason, the data is retained by Xero (not deleted) to enable businesses to meet their statutory obligations.

@August: Xero has had previous instances where advisers are incapacitated or die. In these cases, Xero actively works with the adviser’s firm and the small businesses to ensure continuity of access.

@Peter :)

@Rob T We believe small businesses, in general, should work with advisors. There are some advisor specific features we provide to create value for our accountant and bookkeepers partners which is a business decision we made. Many small businesses, especially those run by ex-accountants, can and do use Xero on their own. Features are very clear on our website. We know we have work to do on permission granularity.

@Timothy Yes

As mentioned in the blog, we are working on guidelines to help the relationship between small business owners and their accountants or bookkeepers in relation to cloud accounting software. We have raised the issue with relevant industry bodies and over the next few months will progress this as a project.

As always, if we have this wrong we’ll likely change it. So please keep the discussion going.

@CJ_NZ
25 April 2014 #

Thanks for the clarification Rod.

Would Xero’s position be different if the advisor removed access to the client?

Rod Drury
25 April 2014 #

If a client complained they didn’t have access we’d certainly make contact and try to understand the situation.

Our general position is the common sense one of doing what’s right for all parties. There are always two sides to a story and if we can’t fix things with a discussion there are standard dispute resolution channels.

This is not a software or even business model issue but an interesting and predictable nuance that 3rd party SaaS providers will from time to time get pulled into disputes.

The most interesting ones we’ve seen actually are matrimonial property, where access to business records becomes an issue.

Charles Klvana
25 April 2014 #

So much incorrect information being posted around the place here. @RobT while I agree that partners with Advisor access, have access to everything, this does NOT mean they have the ability to add/remove users. This is a separate explicit privilege that must be manually given to particular user. So the Xero Advisor access IS still perfect for accountants & bookkeepers. Owners can give full access to their advisors to do their job properly, while still not giving them access to invite any random person or remove them.

I’ve seen Xero intervene during disputes before and move the subscription from a partner to the owner on at least 3 different occasions. So they do do it when the situation warrants it. If they haven’t done it in this example with Oscar, then there’s probably more going on, that isn’t being reported. I note that in the SMH article the accounting firm hasn’t been asked for a response. I wonder why?

End story is twofold; Accounting professionals should act in an ethical and professional manner and their industry associations do have the ability to force them to act. And Secondly when the situation warrants it Xero seems like it will investigate and work with both parties.

Skeeve Stevens
25 April 2014 #

Hi @RodDury,

I think there have been a lot of valid points brought up. But as an end-customer of Xero, I see a advisors as an essential part of the value-chain of Xero.

The problem I see at the moment is there is little to no value-add for a customer to go through an advisor. They can still give them access if required. It isn’t cheaper, easier, etc etc.

But… why don’t you MAKE it more valuable. Give the advisor supported subscriptions features/access/etc that direct ones do not have…. to encourage people to use advisors.

We know advisors are the heart of Xeros business model, and hopefully stay that way, so Xero should support them with either cheaper pricing, so hopefully they can pass that on, or features, add-ons, etc etc that can only be obtained through an advisor.

As an end-customer, I would support this.

Kevin V Russell
27 April 2014 #

Of course the client should be the subscriber. What other point can there possibly be for the Accountant / Bookkeeper to be the subscriber if not to handcuff the client to the Accountant? The real problem for the end user is that they have no way of knowing the risk this entails. And it is a massive risk., We all like to think our profession would behave honorably under all circumstances. The reality is that life is just not like that.

Kevin V Russell
27 April 2014 #

@Skeeve Don’t advisors already get preferred pricing? If they don’t there seems even less of a reason for them to be the subscriber.

Kevin V Russell
27 April 2014 #

@Rod I would also observe this scenario is entirely foreseeable. I agree desktop software can be just as problematic if one partner has the password and the other doesn’t. I have been involved in situations like this myself. First of all Advisors should NOT have the ability to restrict user access to their own file. It is, after all their own information fo which they are paying. If they stop paying then Xero can get involved but the Advisor needs to cop it on the chin. If they haven’t been paid for months then they have made their bed. And you can’t restrict access because they haven’t paid a bill for services unrelated to the subscription. The more I think about it, this problem is entirely avoidable but only if Accountants don’t have a greater level of access than the business owner. Who owns the information? It’s not rocket surgery.

Kate c
29 April 2014 #

We all think proprietary companies should have overall access rights so they can continue their business yes. And if they are a employee, have employee access that can be added or removed by the primary company owner at any time. Yes.

But what about the equal importance of another sovereign company, such as a service company. And they haven’t been paid their bills to continue their business. This should be a 50/50 divorce. The bill should be paid by at least half by the proprietary company, to xero to solicit, and a service company must accept this, for them to be removed and business to go forward for the proprietary company.

Then – they can go fight it in court afterwards where more detail of the nitty gritty work/bill can be dissected. It offers a quick resolution to both companies who have equal rights in continuing their respective business. Just like a divorce.

In terms of struck off directors. There should be a policy that states primary owner must be both a shareholder and a director at the companies office. So when they are voted out, they only receive shareholder read-rights/limited access. Where companies records would enforce this for the shareholder/director, yet not completely remove them as a sovereign shareholder rights, regardless of if the ex-director agreed or not. They would still have limited read access as shareholders are entitled to.

Therefore, there are different entitlement/access rights:
1) primary shareholder / director – full highest level system control and legal control
2) shareholder login – read only, certain information only.
3) admin/employee login – what ever access the primary account holder elects, and can be added removed at any time by 1).
4) service provider – where they have a 50% bill payment guarantee to be struck off access in disputes.

Big change I know. But this is inline with companies records and their legal titles/powers that need to be reflected in software as a service. And also inline with Ird portal somewhat. And is also fair and quick way to resolve for all business interests – companies (husband) and service providers (wives) ;-). All pre-agreed in terms & conditions.

Peter McCarroll
30 April 2014 #

I think that there should be a “code of conduct” for Xero Partners, and a binding subscription dispute resolution service (even if it had a fee). Xero is the only party that can effectively arbitrate and resolve these issues and the privacy rules actually get in the way of this. I have had two situations were other subscribers were preventing access to data belong to a client (one a Xero partner, and one a former employee). We had no where to go and had to consider court action (fortunately level heads prevailed and it didn’t come to that). As a Xero Partner I would welcome these steps.

Kate c
30 April 2014 #

Yes they do have to arbitrate. This is best quickly and easily.

This default no contest fee cancellation policy would likely be split over the different kinds of businesses, sole trader, small company, medium company. And given some rounding for average costs on prior months say to cap supplier blowout final bills. They only have one time to submit information in simple form, and once xero have made their settlement decision it is final and not contestable.

Outside dispute continuation over finances can be for civil court.

This is what they used to do in old days with industry specific unions.

Oh and – there should also be a extreme circumstance for the proprietary company. Where if they really cannot even afford the 50pc, then they must agree to a payment plan. However, if they don’t follow this, the supplier company has “dormant” powers to reenter back as a supplier account holder in precedence, and then hold the account to ransom. Quite rightly so.

Chris Ridd
30 April 2014 #

Thanks @Kate c for taking the time to make some good constructive recommendations. Whilst we could debate some of your suggestions, I certainly concur that it all comes down to solid pre-agreed terms and conditions. Similar to comments from @Peter McCarroll, a code of conduct makes sense, although Xero stepping up as a party to oversee arbitration opens some very complex issues. As Rod mentioned in his earlier comments, we are working through the feedback and now progressing this as a project to determine an appropriate and considered response.

Tamsin
16 May 2014 #

Thank you for addressing this however, I believe there needs to be much more emphasis placed on the Business Owner owning the file during setup, such as a recommendation from Xero that the business owner be the subscriber. A definition of the subscriber’s role in the Terms and Conditions are not enough. (I once read that if you read all the Terms and Conditions that were put in front of you each year you would spend 25 days a year reading these policies!)

I am a Xero Convert, and am for the most part very happy, however some things still baffle me with Xero’s methodology and ways of thinking in some key areas, namely this one.

The difference with MYOB is that even though a bookkeeper or accountant may have owned the subscription, the file is able to be duplicated, the serial number stripped and re-entered while maintaining the integrity of the historical data. Xero does not allow or enable you to make a ‘copy’ or ‘backup’ in order to start fresh while keeping your data.

Currently, even though the business owner must sign for everything including the bank feeds setup, they have no rights to the file or the information if not the subscriber. This is insane.

A change is a must including but not limited to Xero’s assistance and potential mediation when a relationship between their Xero Partner and the Business Owner goes south and better warnings of the ramifications of not being the subscriber.

Iain Thorpe
23 May 2014 #

There are two different issues here, I think. Ownership of your data is not necessarily the same as exercising a security (lien) over data that you own until you pay for services rendered.

There is a useful point to be made about the lien issue.

The idea that you if you put something in for repair or service you don’t get it back until you have paid for the service is a very old one. It has applied whether the thing is your watch, your boat or your important papers.

But, of course, this right can be abused where there is a dispute over the fee to be paid for the services provided.

The commenters on this post seem to come from a number of different states so it is hard to generalise about what the rules are in each place.

Many states use a system that solves the problem.

Where there is a dispute over payment and a lien is claimed, then the owner of the property (let’s call it data) pays the amount of the claim into trust or escrow with a third party where it is held until the dispute is resolved. Once payment into escrow is made then the lien cannot be maintainedand the property released.

Under this system clients don’t get stiffed by excessive charges and accountants don’t get stiffed by deadbeat clients withholding payment.

I don’t know what Xero’s terms and conditions say or how they would work in different countries.

Assuming it hasn’t done so already, I think there is a real opportunity for Xero to change its terms to be the independent stakeholder between clients and accountants. In the event of a fee dispute clients can pay the disputed amount to Xero where it would be held on trust until the client and the accountant resolve their dispute. The data would be released as soon as the payment into trust is made

Varis
26 May 2014 #

I might be missing something here, but isn’t there an added push by Xero to have accountants as the subscribers as often possible through the potential free subscription to Workflow Max (soon to be Xero Practice Manager) and in particular Practice Manager Tax? I have switched over from MYOB AO to WFM (a dream I tell you) and once we reach 25 Xero subscriptions we qualify for free practice management and tax software.

I personally think this is fantastic as it actively saves me money (and my Xero clients through software efficiencies) but it does add to the idea that Xero’s stance is it would prefer to deal with advisers holding ‘bunches’ of subscriptions rather than individual subscriptions.

In fairness though, should any client have an issue with our position here, or move accountants, then we would have no hesitation in reverting the subscription to themselves. Clients have the right to choose their own advisers and make changes when they see fit. We won’t stand in the way of those choices and would always work with the client to resolve any situation fairly and reasonably.

It is an interesting discussion though.

William Somerville
2 June 2014 #

In order to clear your thinking, and that of some of the commentators, you need to commission a high quality legal opinion on what would constitute acceptable arrangements for a client of an accountant/xero who has multiple legal obligations to third parties to maintain accounting records and produce financial statements.

Standing, as you do, on the narrow view that client’s should sort this out with their accountants may be legally correct but will not serve your business model well. People assume they have a right to access their records and financial statements and, if you don’t take all practical steps to protect this, the cloud is going to rain on you.

As a lawyer and accountant, who has practised in both fields, and as a trustee of several very large trusts I could not currently recommend Xero without seeing very clear arrangements in place to ensure I can always fulfill my duties as a trustee and taxpayer in multiple jurisdictions.

Whilst you cannot ultimately dictate the client accountant relationship you can help develop a set of model terms covering the tripartite relationship between yourselves, the accountant and their client. This approach has served many areas of commerce well and would be cheaper and more efficient than vague dispute resolution procedures.

Finally, can I warn some of your commentators that withholding access by analogy with a lien bristles with legal problems and you are likely to have a difficult and expensive fight with the courts

Chris Ridd
2 June 2014 #

Thanks for the comments William.

The evolution of business practice often precedes the evolution of law. Those involved in areas of new business, such as cloud computing and bio-engineering, often work in areas so new that no specific legal framework has been developed. Businesses that operate in these spaces adapt their business models as consumer demand changes and as the legal framework evolves. Xero has a culture of listening and responding to feedback on its operations.

We are currently working on a Code of Conduct to govern our relationship with our accounting partners. Part of this Code will be the requirement for accountants to provide Terms of Engagement in writing with their clients, which clearly outline the expectations around the subscription to Xero.

It is worth remembering that SMBs can overcome these issues by taking out the Xero subscription in their own name, rather than that of the accountant.

Iain Thorpe
3 June 2014 #

William Somerville’s point about what happens to data of accounting clients using xero on behalf of third parties is a good, and difficult, one.

I would hope that no-one would try exercise legal rights on the basis of blog comments, but it is maybe worth making explicit the point implied in William’s comment: that advice should be taken before any lien is exercised. Amongst other things, it can sometimes be unethical to exercise a lien over a client’s papers.

On the other hand, it is not uncommon in New Zealand for accountants to claim a contractual lien on papers in their standard terms and conditions that goes well beyond that arising by law; and there does not appear to be any ethical difficulty in their doing so.

Whether, and how, such a lien would be exercised does depend on the facts of each case. When a lien can be exercised it may be a useful tool for the lien holder, and most often leads to a swift resolution of the underlying dispute without any intervention from courts or arbitrators.

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