How to set up tracking categories on Xero

beginner 8 min read Updated 2026-03-18

Quick Answer

Tracking categories in Xero help you organize transactions by department, location, or project for better reporting. You can set them up through Settings > General Settings > Tracking Categories, where you create categories and add specific tracking options.

Try Xero Full Xero Review

Prerequisites

Active Xero subscription
Administrator or Advisor access to your Xero organisation
Basic understanding of your business structure and reporting needs

Step-by-Step Instructions

Access Tracking Categories Settings

Log into your Xero organisation and click Settings in the top navigation menu. From the dropdown, select General Settings, then click on Tracking Categories from the left sidebar menu.

Make sure you have administrator access as tracking categories can only be set up by users with full permissions.

Create Your First Tracking Category

Click the Add Tracking Category button. Enter a descriptive name for your category in the Name field, such as 'Department', 'Location', or 'Project'. Add an optional description to help other users understand the category's purpose.

Choose category names that are clear and won't change frequently, as renaming later can affect historical reporting.

Add Tracking Options to Your Category

Under the Tracking Options section, click Add Option. Enter specific options for your category, such as 'Sales', 'Marketing', 'Operations' for a Department category. Add as many options as needed by clicking Add Option again for each additional choice.

You can add up to 100 tracking options per category, but keep the list manageable for easier day-to-day use.

Configure Category Settings

Choose whether to make tracking Required by checking the appropriate box - this will force users to select a tracking option for every transaction. Set the category status to Active to make it available for use immediately.

Consider starting with tracking as optional initially, then making it required once your team is comfortable using the system.

Set Up Additional Tracking Categories (Optional)

If you need a second tracking dimension, repeat steps 2-4 to create another tracking category. Xero allows up to 2 tracking categories per organisation. Click Add Tracking Category and follow the same process with a different category name and options.

Common second tracking categories include combining Department with Location, or Project with Client.

Save and Activate Your Setup

Click Save to confirm your tracking category configuration. Your tracking categories will now appear as dropdown options when creating or editing transactions, invoices, bills, and bank transactions throughout Xero.

Test Your Tracking Categories

Navigate to Business > Invoices and create a test invoice. Verify that your tracking categories appear in the line item details. Check that all your tracking options are available in the dropdown menus and functioning correctly.

Test with different transaction types like bills and expense claims to ensure tracking works across all areas where you need it.

Common Issues & Troubleshooting

Cannot see tracking categories option in settings

Ensure you have Administrator or Advisor user permissions. Standard users cannot access tracking category setup. Contact your organisation administrator to upgrade your permissions.

Tracking categories not appearing on invoices or bills

Check that your tracking categories are set to Active status in Settings > General Settings > Tracking Categories. Inactive categories won't appear in transaction entry screens.

Unable to add more than 2 tracking categories

Xero has a limit of 2 tracking categories per organisation. Consider consolidating your tracking needs or using more detailed tracking options within your existing categories instead of creating additional categories.

Tracking options appear in wrong order

Tracking options display in the order they were created. To reorder, you'll need to delete and recreate the options in your preferred sequence. Make sure no transactions are using the options before deleting.

Prices mentioned in this guide are pulled from current plan data and may change. Always verify on the official Xero website before purchasing.

Visit Xero View Xero Pricing