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Xero responds as another customer complains account ‘held hostage’

Xero is promising new guidelines following a second high-profile customer complaint that their account is being held hostage.

The Sydney Morning Herald reported April 17 that “When Oscar de Vries changed accounting software packages it cost him a small fortune.”

A switch from MYOB to Xero had blown out from $A9000 to $A20,000 for the Oscar Natural owner, the Aussie paper said.

In reality, the situation is more nuanced – and the core issue does not relate to the cost of the transition to Xero so much as whether a business owner has the right to control their Xero account. Mr de Vries says his Xero account is being ‘held to ransom’ by the accounting firm he hired for the upgrade, Viridity.

The Xero leg of his company's software overhaul actually went smoothly. But a parallel inventory software upgrade, also being carried out by Viridity, went over the Sydney small businessman's expected timeframe and budget, leading to a dispute over payment.

The skincare retailer says the tiff has seen him locked out of his Xero account. He wants access so he can take it, and his business, to another accountant.

Like other customers, Mr de Vries has learned the hard way that the person who originally signs up a small business to Xero – be they the company’s accountant, a systems integrator, a director or a PA – has sole control over the account. If they don’t agree to changes, nothing happens.

Institute of IT Professionals NZ CEO Paul Matthews has previous criticised this setup, telling NBR access should be determined by legal right, rather than a company owner being locked out and frustrated by whichever person happened to setup the account.

Speaking to NBR last night, Mr de Vries said when his accountant retired, he decided it was the right time to not only switch to a new accounting firm, but to switch accounting software away from MYOB.

He signed with the Sydney-based Viridity, which partners with both Xero and MYOB.

The accounting firm recommended he move to Xero for accounting, and Unleashed for inventory management.

Based on his discussion with another potential contractor, Mr de Vries had the expectation the project would cost $A8000 to $A9000 and take a couple of weeks.

After bills from Viridity hit around $20,000, and the upgrade dragged on for months, Mr de Vries wanted to pull the plug.

The retailer told NBR “Xero is great software.” He has no issue with it. Complications have centred on the move to Unleashed for his inventory software.

But although the payment dispute centres on Viridity’s work on Unleashed, by Mr de Vries description of events the accounting firm is blocking access to his Xero account as a bargaining chip.

The dispute has now gone to mediation. Mr de Vries accepts things might not go his way over the $20,000. He acknowledges he was naive not to get a formal quote.

But equally, in the meantime he wants to leave Viridity and start afresh.

Mr de Vries says he assumed because he was paying the monthly subscription, and it was his financial data, it would be a simple process to transfer his Xero account from Viridity’s name to his name. But no dice. Over several phone calls, Xero staff told him it was not possible. An account’s details cannot be changed unless the party setup to control the account agrees.

“If it can’t change its Terms & Conditions, Xero should lean on accountants not to hold an account hostage in a dispute," Mr de Vries says.

A second case, in Auckland, also illustrates the complications of the person who signs up a small business to Xero having control over the account.

Last September, NBR covered Vibe Communications, a boutique ISP where two director-shareholders, Davey Goode and Barry Murphy, fell out with a third, Hadleigh Bognuda.

Mssers Goode and Murphy passed a resolution to stand-down Mr Bognuda as a director, but he remained a shareholder. And the pair also discovered that because Mr Bognuda setup Vibe’s Xero account, and put his name on it, he had sole control.

When the departed Mr Bognuda refused to hand over his logon details, Mr Murphy went to Xero – but was frustrated when the company refused to transfer the account away from the stood-down director, citing its Terms & Conditions.

Last night, Mr Murphy updated NBR that he had resolved the situation. “But it was without any help from Xero,” he says.

Instead he was forced to resort to some hard-shouldering tactics, telling Mr Bognuda a six-figure company loan would be used to fund legal action to try and win control of the Xero account – meaning that as a shareholder, the stood-down director would be part-funding a courtroom attack on his position.

In the end, the matter never reached court. Mr Bognuda agreed to hand over his logon details after a pledge to supply him with quarterly financial updates. And on April 1 2014, Messrs Goode and Murphy bought out his share, closing their dispute.

But Mr Murphy remains aggrieved he had to jump through hoops to gain control of his company’s Xero account, and the cost of retaining law firm Keegan Alexander during the eight-month spat.

Suggestions for Xero's new guidelines
Late yesterday, Xero CEO Rod Drury told NBR, “We have over 280,000 customers and have only seen a handful of these issues." Mr de Vries scoffs at this assertion, claiming that in his immediate circle of business colleagues alone, he knows of four people annoyed they don't have direct control over their Xero account.

"We are currently drafting some guidelines in consultation with industry, Mr Drury added, "It's an area the professional bodies could contribute too as technology surfaces disputes that take place regardless.”

Mr Drury pointed NBR to Xero general counsel Matt Vaughan for further comment.

Mr Vaughan said Xero has traditionally left it to customers and their accountants to sort out whose name is put on an account.

But the company has now acknowledged there’s a potential issue with the customers like Mr de Vries, and the tech-savvy directors at Vibe, who were simply unaware that the person who setup an account and put their name on it assumes full control.

“We are working on guidelines, involving input from relevant industry bodies, to provide additional guidance on the relationship between small business owner and accountant in the context of cloud accounting software," Mr Vaughan said.

The counsel added that Xero already has a disputes resolution process. Mr Barry said this statement surprised him; after extended communication with Xero he had no idea how it worked. Mr Vaughan told NBR it involved Xero directly mediating between the parties in a dispute - if both agreed. Alternatively, the company could point people involved in a dispute to relevant industry bodies who could mediate. Xero would abide by any court-ordered or binding mediation resolution.

Xero head of accounting Grant Anderson is heading the effort to put the new guidelines together.

Vibe’s Mr Murphy has a suggestion for the guidelines: allow more than one director (or manager’s) name to be on a Xero account.

Mr Vaughan said that could cause more problems than it solves, as it could become difficult to ascertain who had made or approved a change to the account holder’s details.

NBR suggested in the instance where a company has more than one directors, all on the board would have to sign a consent form acknowledging that the person whose name was on the company's Xero account had sole power to make admin changes. At least that way, there would be no nasty surprises about the policy.

Mr Vaughan said with Xero's service sold in 106 countries, each with different regulations and company office registries, such a solution would not be practical to police.

However, he is open to ideas. The general counsel says Xero will blog about the guidelines over the next day or two and solicit feedback [UPDATE: the blog is now online here]. The finished guidelines will be ready “in the near future.”

LATEST: Xero accounts being 'held hostage' — rival MYOB weighs in

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Comments and questions

I've seen a similar case here in NZ - not a good position for a business to be in.
Especially if the relationship with the former accountant has soured.

Fact: If you shift from MYOB (and many other accounting products not marketed as simple Cashbooks) you will need a minimum of two systems. Xero + one that can handle Point Of Sale, CRM, Inventory etc.
The devil is in the detail. Xero's headline monthly charge is only part of the story.

Do you realise how cloud services work? This is a very standard practice and in fact is how the industry as a whole works.

The fragmentation of product provision is a direct contrast to the old ways of IBM / Microsoft / Adobe.

Stick to what you are good at and work with platform partners who can provide an integration with your own service. Voila, you all lock in your users.

Xero isnt called beautiful CRM software - its beautiful accounting software and thats all it does.

Thats not a minor detail hidden way either, it is in the masthead.

(As for the account creation / admin control issue - this is a problem wider than Xero. As a Google infrastructure builder, we encounter clients weekly who have legacy management issues with their Google marketing property. Almost always because of poorly thought out third party implementation.The solution is to always create accts in the clients name)

Looks like a pretty simple situation of XERO not thinking about the results of its T&Cs.

Knowing full well that accountants and firms could and would set-up accounts for its clients, having a situation where the account is then 'owned' by them, and not the actual organisation that account represents is ludicrous.

XERO just needs to change its T&Cs, establishing account ownership is the organisation for who the accounts are being managed, an administrator assigned by that organisation, and the ability for that to be changed, with appropriate documentation from the client organisation.

I think one of the great marketing points of Xero (to accountants) was that accountants got Xero at a wholesale price, then charged their clients retail - thus collecting a free margin on the monthly/annual revenue.

If more clients insist on having the subscription in their own name, Xero will just have to find another way of slipping backhanders to accountants...

Lots of people have left comments along these lines - and a couple of the protagonists mentioned in the story above raised the point too.

But I don't see why an accountant can't clip the ticket - or, better, provide value-added service but still have allow a Xero account to be in the client's name, and to fork it over to the client who is paying for it, and owns the data, if the client requests it.

Accountants can't get a share of the monthly client revenue unless the Xero account is in the accountant's name and the accountant pays the monthly fee in the first instance. It is that simple. Part of the T&Cs with accountants, so Xero will need to overhaul client T&Cs and the way they recognise and reward accountants for the clients they bring to Xero. As an accountant I find this a very complex way to recognise and reward me. I would prefer the client owned the Xero account and I was recognised anyway - which is what MYOB do. I tend to pass the Xero discount on to the client anyway via a discounted monthly connection fee in a bundled price based on my client service plans. This is the only way I can do that.

I expect many, if not most SME's find the concept of accountants clipping the ticket abhorrent. The reason we pay accountants is so they provide an added value service, and being an intermediary in a payment transaction is not a value add by any stretch.

Xero should start to recognize who their customer is, and work expeditiously to resolve these bad press situations. The last thing they need is Customers getting agitated at these sort of issues, as this type of issue arise at a time of high stress anyway.

Whose is the data? answer that question and the problem goes away (assuming Xero get it right), the alternative will be bad press, loss of potential customers.

Sorry Chris - happens in all industries. It is not abhorrent at all! If you manage to squeeze a supplier and get him to lower his pricing so you make more of a margin is that abhorrent too? If you are in business I bet you do it all the time! My clients certainly do it to me. In this case Xero are dangling a carrot to get accountants' loyalty. In the building industry it's done with volume rebates to secure more and more of a customer's order. Grow up and join the real world.

At the very least shouldn't the accountant be disclosing that they receive a commission for selling this service, and that they have full and unfettered control of the account and data, even at the exclusion of the business owner? Technically this is actually quite a simple admin user rights issue. It looks like the commercial sales channel issue is the real barrier.

If the account is for a business it should be registered in the business name with the "person" signing up as a primary contact.

Then... whoever has legal ownership over that business owns the account.

It is how almost every other service provider providing services to businesses operates.

Simple to fix really.

Every company has hiccups. Growth isn't easy to control.