7 tips to improve your cashflow using Xero

7 August, 2020
Meryl Johnston

Meryl Johnston

5 minutes

Cash is king for any business.  

Using cloud accounting platforms like Xero can make a huge difference to your bank balance. 

In this post, we’re sharing 7 tips to help you improve your cash flow. 

What is cash flow? 

First, it is important to define what cash flow is.

Cash flow is simply all of the money flowing in and out of the business in a given time period.

And, cash flow management is the actionable tracking of cash inflows and outflows. 

What does it mean to be cash flow positive?  

You often hear cash flow described as either cash flow positive or cash flow negative. Cash flow positive is when a business is profitable, can pay all of their expenses, and have a buffer for the future.

So, it goes without saying that all businesses should strive to be and remain cash flow positive. 

How does Xero make it easy to manage your cash flow? 

Using the bills area of Xero means that you have a current list of bills that are due for payment.

This helps with both cash flow management and cash flow forecasting

How often should you be monitoring your cash flow statement? 

It depends on how tight cashflow is.

If you have 3-6 months of expenses in the bank, then we recommend looking at it monthly. And, if you are a cash flow crunch,you should be looking at this weekly in addition to monitoring accounts receivables.  

How can you improve cash flow in your business? 

We’re sharing eight ways that you can improve cash flow in your business. 

1) Recurring revenue

It is pretty common these days to be charged for software or services using a subscription model. 

Years ago, you would walk into a store to purchase Microsoft Office.  Now, Microsoft wants you on an annual subscription model like Office 365? Why?

Recurring revenue is “guaranteed regular cash flow” unless the customer opts out of the subscription. 

Are there parts of your business you could charge as a recurring subscription? For example, a web design agency might charge a one-off fee for design work, but there could be recurring revenue options around maintenance or hosting?

Tools like PayPal and Stripe all cater to recurring subscriptions and can be integrated with Xero.   

You can also setup recurring invoices to be emailed automatically to customers each month from within Xero.

Repeating invoice

It is much harder to get a customer back in 12 months than to continue a monthly subscription. Click To Tweet

2) Zero day payment terms

When I get my car serviced, a guy collects the car from my office and drops it back.  He brings a portable EFTPOS machine to take payment when he returns the car.

How does it work in your industry?  Can you take payment at the Point of Sale rather than offering payment terms? If you’re selling B2B, this might be more difficult and you might need to think about how you frame this to the customer. If this isn’t possible, then can you reduce your payment terms from 30 days to 14 days, or 14 days to 7 days?

With Bean Ninjas we take payment up front, but this was something I struggled with in my consulting business.  

3) Invoice quickly

If you aren’t charging customers on a recurring basis and you can’t take payment at the Point of Sale, then you are probably invoicing your clients once you complete the work or on a progress claim basis.

All things being equal, if you invoice faster, you will receive the cash faster.  

Here is an example:

In both situations the work was completed on 6th July and payment terms are 30 days

  • Situation 1: Invoiced on the 7th July = paid on 7 August
  • Situation 2: Invoiced 21st July = paid on 21 August

What is stopping you from invoicing as soon as you complete the work? 

  • Situation 1:  Invoiced on the 7th July = paid on 7 August
  • Situation 2:  Invoiced 21st July = paid on 21 August

What is stopping you from invoicing as soon as you complete the work?  If I’m out at a client I will often log onto Xero and send the invoice while I’m there.  It only takes a few minutes.

4) Get the invoice right!

If you’ve sent a quote for the job in Xero, then it is very easy to turn the quote into an invoice and avoid any data entry errors.


If you haven’t quoted in Xero then take the time to ensure the amount, description and customer contact details are correct before you send the invoice. 

5) Use Progress or Milestone Payments

Here is a little scenario to help explain this.

A local plumbing business is doing well and they’ve picked up some big customers, but they’re struggling with cash flow.  They’ve had to pay their sub-contractors, but they haven’t yet been paid by their customers.  They have $5,000 in the bank to pay bills and they have 2 bills left to pay:

  • $5,000 to a web design agency who completed their website last month.  The website is looking great and has had lots of new traffic
  • $5,000 to a marketing guru who will release the blog posts she has written once she receives payment

The business owner is a good guy, but he only has enough money to pay 1 supplier.  Who will he choose?

  • Option 1:  James pays the web agency and will have a website
  • Option 2:  James pays the marketing guru and will have both the blog posts and a website

In this scenario, you want to make sure you’re the marketing guru as you’re the most likely to get paid.

It is important to keep an honest and transparent relationship with your customer and treat them fairly, but they should also expect to have to pay for products and services by the agreed upon date.

If you can structure your agreement so that you don’t provide the product or service in its entirety, until you have received the majority of the payment then you will be the ‘marketing guru’ in this scenario.  

6) Automate invoice reminders

How do you know when an invoice is overdue and what do you do?

In Xero, you can keep an eye on the Dashboard and easily see a snapshot of late paying customers.  The items in red indicate the invoices are past their due date.

There are a number of debtor management add-ons that integrate directly with Xero, which can automate the debt collection process for you by sending automated reminders.

You can also email statements to your outstanding customers from Xero.  By customizing a template email and sending statements in a batch you should be able to complete this step in less than 10 minutes.

Pro Tip: We recommend keeping your bookkeeping up-to-date. If not, sending automated reminders can be risky, since it is possible you will be following up customers who have actually paid you (but the funds haven’t yet been allocated to their invoice in Xero so their invoice is showing as outstanding)

7) Make free cash flow work for you

Finally, it is all about making your cash flow work for you. This could mean putting it in a high interest earning account or using it to get discounts for things like annual plans.


Cash flow gives you options and the ability to try different things, not take on clients who aren’t the right fit, hire great people, and more.

Posted By

Meryl Johnston

Meryl Johnston

Meryl is a Chartered Accountant, entrepreneur, and surfer! The Bean Ninjas mission: Creating freedom for entrepreneurs through stress-free business finances.

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