Setting up your inventory properly is crucial to running a smooth and efficient business. In Xero, getting your product codes, categories, and units right from the beginning helps you manage stock accurately, simplify reporting, and streamline your sales process.

Whether you are selling physical products in a store, through eCommerce, or across multiple locations, Xero’s inventory management tools offer flexible and user-friendly features. Here is a step-by-step guide on how to correctly set up product codes, categories, and units in Xero Inventory.

Understanding the Basics of Xero Inventory

Xero’s inventory management system allows you to track stock levels, costs, and sales performance. When setting up inventory items, three key fields, product codes, categories, and units, are essential for organizing and monitoring your inventory effectively. These elements improve visibility, reduce confusion, and support better decision-making across your business operations.

Creating Product Codes

Product codes are unique identifiers used to track each inventory item. A clear and consistent product coding system helps you quickly identify items, especially when you have many similar products.

Tips for creating product codes:

1. Use a consistent format, such as a combination of letters and numbers (e.g., SHRT-BLU-M for a medium blue shirt).
2. Keep them short but descriptive.
3. Avoid using special characters or spaces.
4. Group codes by product type or department for easier sorting.

To add product codes in Xero:

1. Go to Business > Products and services.
2. Click New Item.
3. In the Item Code field, enter your unique product code.
4. Fill in the other relevant fields, such as item name, price, and account for tracking.

Setting Up Categories (Using Tracking Categories)

While Xero does not have built-in “item categories” like traditional inventory software, you can use Tracking Categories to group your products by department, region, or product line.

How to set up tracking categories:

1. Navigate to Settings > Advanced settings > Tracking categories.
2. Click Add Tracking Category, and name it (e.g., “Product Type” or “Department”).
3. Add options under this category, such as “Clothing,” “Accessories,” or “Footwear.”

When entering or editing items or invoices, you can assign these tracking categories to each item or transaction. This allows for more detailed financial reporting, letting you see which product categories perform best.

Defining Units of Measure

Setting the correct unit of measure ensures consistency in how inventory quantities are tracked and reported. For example, you might sell drinks by the bottle, clothing by the piece, or fabric by the meter.

To define units:

1. In the New Item form, you will see a field labelled Unit of Measure.
2. Enter how the item is tracked or sold (e.g., “each,” “box,” “kg”).

Ensure you use the same unit throughout all purchases and sales involving that item. This prevents discrepancies and helps maintain accurate stock levels.

Final Tips for Success

1. Double-check item names and codes before saving to avoid duplicates.
2. Use clear naming conventions to make it easy for your team to search for products.
3. Regularly review and update your product list to remove discontinued or outdated items.

Conclusion

Setting up product codes, categories, and units in Xero Inventory may seem like a small task, but it plays a big role in ensuring inventory accuracy and operational efficiency. With an organized inventory structure, you will save time, reduce errors, and make better decisions based on reliable data. Whether you are new to Xero or looking to improve your current setup, following these steps will help you manage your products like a pro.