A bank feed is the connection that pulls transaction lines from your bank or card account into Xero automatically. A bank rule is a set of conditions you write that tells Xero how to code a statement line when it arrives, so you can approve it with one click instead of typing an account name. The feed brings data in. The rule decides what the data means. Sellers who confuse the two end up with either a pile of unreconciled lines or a pile of confidently miscoded ones.
Xero connects to financial institutions two ways. A direct feed is a bank to Xero connection the bank itself supports and maintains. An aggregated feed runs through a third party data provider that logs in on your behalf and passes the transactions along. Direct feeds break less often. Aggregated feeds cover institutions that never built a direct connection, which includes a long tail of regional banks and most payment platforms.
Either way, a feed is one directional. It brings statement lines into Xero. It does not push anything back to the bank, and it does not create accounting entries by itself.
A statement line is thin. Date, amount, a payee or description string, and sometimes a reference. That is usually the whole payload. It does not contain the invoice it relates to, the SKU it paid for, or the split between principal and fee. When your Shopify payout arrives as one line reading "SHOPIFY PAYOUT" for 18,442.19, the feed has told you the truth and almost nothing useful.
This is the single most important property of bank feeds for a product business. The feed sees net cash movements. Your income statement needs gross activity. The distance between those two is where marketplace accounting actually happens.
The Xero reconcile screen puts the statement line on the left and a proposed accounting transaction on the right. You are confirming that a transaction already in Xero corresponds to money that actually moved, or you are creating that transaction on the spot. When you click OK, Xero marks the statement line reconciled and the underlying transaction as paid.
That framing matters. Reconciliation is not data entry. If the only place a sale exists in your books is the reconcile screen, you are not reconciling anything, you are transcribing a bank statement into an income statement and calling it accounting.
A bank rule watches incoming statement lines for a pattern you define, and when a line matches, it pre fills the transaction with the accounts, tax rates, contact, and tracking you specified.
Xero Central documents three: spend money, receive money, and transfer money. Spend money rules code outgoing payments. Receive money rules code incoming deposits. Transfer money rules handle movements between two accounts you own, including cross currency transfers where the sending and receiving accounts use different currencies.
The distinction is not cosmetic. A transfer coded as a spend money transaction inflates expenses and understates cash in the receiving account. It is one of the most common errors in a seller's file, and it happens most often when moving money between an operating account and a card payoff account.
A rule matches on the fields the feed actually provides: the payee or description text, the reference, and the amount. Conditions can be exact or partial, and can be combined with "all" or "any" logic. A rule can also be scoped to a single bank account, which is how you stop a card rule from firing on your operating account.
The allocation section is where a rule earns its keep. You can send the whole amount to one account, or split it across several by fixed amount or by percentage. You can attach a tracking category option. You can set the tax rate. All of that happens before you ever look at the line.
Your freight forwarder bills you monthly. The card statement shows a single charge each month with the description "GLOBALFWD INV". Historically about 78 percent of that invoice is ocean freight and inland drayage, and about 22 percent is customs duty and brokerage.
The rule looks like this:
A 14,600.00 charge now arrives pre coded as 11,388.00 and 3,212.00. Twelve months of that is 24 line items you never typed.
Now the caveat that makes this example honest. Those percentages are an estimate, and a percentage split rule will never be right for any individual shipment. It is right on average and wrong in detail. That is acceptable for a general overhead cost. It is unacceptable for landed cost allocation, where the split determines the unit cost of specific inventory and therefore your cost of goods sold. Rules are a coding shortcut, not a costing engine.
Rules match on text and amount. Marketplace payouts vary in amount every time, arrive from the same payer, and carry an opaque description. A rule can identify that a deposit came from Amazon. It cannot tell you that the deposit contains 128,400.00 of gross sales, 6,120.00 of refunds, and 50,272.00 of fees, because none of that appears in the statement line.
The correct pattern is the one described in the Amazon to Xero setup guide: post the settlement detail to a clearing account, then use the bank feed to reconcile the deposit against that clearing balance. The rule, if you use one at all, simply points the payout at clearing. All of the accounting happened before the money arrived.
The same structure applies to Shopify payouts in Xero, to eBay, and to Walmart. Different platforms, identical shape.
Cash coding is a Xero feature that shows statement lines in a spreadsheet style grid so you can code many at once. It is fast, and it is dangerous in exactly the way speed usually is. Cash coding creates transactions directly from statement lines, which means anything you code there exists only because money moved. For utility bills and software subscriptions, fine. For revenue, no.
Xero's US pricing page lists bank reconciliation on every business plan, with an auto reconcile feature marked as beta on the Growing and Established tiers. The Early plan carries hard caps that catch product sellers off guard: 20 invoices and 5 bills per month. A seller with a supplier ledger will hit the bill cap in the first week.
Feeds tell you what the bank did. Rules tell Xero how to code what the bank did. Neither one knows what you sold. For a business whose revenue arrives pre netted by a marketplace, the accounting has to be built from settlement data and then reconciled to the feed, not derived from the feed. More on how that structure works sits on the Xero integration page and in the broader ecommerce accounting overview.
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