Payout decomposition
Payout decomposition is the process of breaking a single net payout from a payment processor — such as Stripe or Shopify Payments — into its constituent parts: gross receipts, processing fees, refunds, and any other deductions, so that each component can be posted to the correct nominal account in Xero.
When a payment processor settles with your bank, it transfers a single net figure — not individual customer payments. That net figure is gross card receipts for the period minus processing fees, refunds, and any dispute adjustments deducted before the money leaves the processor. Payout decomposition is the bookkeeping work of unpicking that single bank line back into its components.
Why it matters in Xero
Matching a payout directly to invoices produces wrong accounts: gross income is understated by the fee amount, processing fees go unrecorded, and refunds are silently absorbed. Over a VAT quarter this creates a material discrepancy between your accounts receivable and what actually happened.
The standard approach is to route payouts through a dedicated clearing account. Say Stripe sends £2,350.00 to your bank, representing £2,450.00 of card receipts minus £100.00 in fees. Post £2,450.00 gross income to the clearing account, record £100.00 to a processing-fees expense code, then match the £2,350.00 bank line against the net clearing balance. Each component lands on the correct nominal code, and the clearing account returns to zero once fully reconciled.
Pulling the transaction-level breakdown from the processor’s API automates this step, leaving only genuine exceptions for review.