Using Xero to manage your cash flow
Cash is the life blood of any business. You’ve heard the saying “Cash is king”. And it’s true, you can’t pay your bills without the cash. It’s no good making sales which don’t convert into cash.
Xero has some useful features which can help you to manage your cash flow.
Sales overview
The sales overview gives you a quick and easy view of the money owed to you, there’s a really useful “money coming in” graph which does what it says on the tin: showing when money is expected to come in. You should be in contact with your customers and if, after speaking to a customer, you know that they aren’t going to pay on the 13th when the invoice is due, but will instead pay on the 20th, you can add an expected payment date in Xero. This will automatically update the Money Coming In graph.
To save you manually emailing customers to chase for payment, did you know that in Xero you can set up automated invoice reminder emails to chase your customers?
Another way to facilitate faster payments is to set up a payment service to allow your customers to pay online via a “pay now” button on your invoices. During a recent webinar (April 2020) Xero claim that adding a payment service such as Paypal or Stripe with a pay now button gets you paid 50% faster
Bills to pay
When you review bills awaiting payment you can set a planned date for payment. This then allows you to visualise your cash outflow in the Purchases overview.
You must ensure that all Bills are added to Xero promptly so that you have full information to support your decision making. Using Hubdoc makes it super easy to get bills into Xero, it’s simply a case of “snap and go”.
Budget manager
This feature allows you to create a monthly budget in Xero. You can either download a spreadsheet template, update it and load it back into Xero or just enter the data directly into Xero. The budget should be the financial interpretation of your business plan. Once this is in Xero you can start to identify deviations from the budget by running reports showing actual vs budget.
You can’t rely on any of these tools to make decisions if data isn’t accurate and up to date. This is why performing a regular bank reconciliation is so important. You can read more about that here.