Xero cash flow forecast

A useful short-term view, and when you need a proper three-way forecast.

By the ConsoHQ editorial team. Updated 4 November 2026.

Key takeaways

• Xero's forecast covers 30, 60, 90 or 180 days depending on your UK plan.
• It only uses invoices, bills and repeating items already in Xero.
• A three-way forecast links profit, balance sheet and cash and is what lenders usually want.
• A 13-week forecast, updated weekly, is the best tool when cash is tight.
• Groups should forecast each company, then consolidate and eliminate intercompany funding.

What Xero's forecast does

Xero looks at what's already in the system: your bank balances, invoices customers owe you with their due dates, bills you owe with their due dates, and repeating invoices and bills. From those, it projects your bank balance day by day over the forecast period. You can add one-off items and adjust expected payment dates to make it more realistic.

It's genuinely useful for the question most small business owners ask every week: "Will we have enough in the bank to pay everyone this month?"

Forecast horizon by plan

What it doesn't do

• Future sales and costs. If a sale hasn't been invoiced, it isn't in the forecast. For a business that invoices on completion, that can leave most of next month's income out.
• Payroll and tax unless recorded. Salaries, VAT and corporation tax only appear if they're entered as bills or repeating items.
• Customer behaviour. It assumes invoices are paid on their due date. Real customers pay late.
• Three-way linking. It doesn't connect P&L, balance sheet and cash, so you can't test "what if" scenarios properly.
• Groups. It's one organisation at a time.

Short-term cash forecast versus three-way forecast

These are different tools for different jobs.

A short-term cash forecast, like Xero's, uses known receipts and payments to manage the next few weeks. It's operational: when to chase a debtor, when to delay a supplier payment.

A three-way forecast starts from a profit and loss forecast, adds working capital assumptions such as how long customers take to pay, how long you take to pay suppliers and stock levels, plus capital spending, loans and tax, then derives a forecast balance sheet and cash flow. It's strategic: can we afford to hire, will we breach a bank covenant, how much funding do we need? Lenders and boards usually want this kind. Read more about cash flow forecasting.

Try three-way forecasting in Joiin

How to build a three-way forecast

1. Start with a P&L forecast. Use your budget or last year's actuals adjusted for what you know.
2. Set working capital assumptions. Debtor days, creditor days and stock days, based on recent history.
3. Add the non-P&L items. Loan repayments, capital spending, dividends, VAT and corporation tax timing.
4. Derive the balance sheet and cash. A forecasting tool does this automatically; in Excel it takes careful modelling.
5. Compare with actuals monthly. Replace forecast months with actuals as they close, and adjust assumptions that prove wrong.
6. Run scenarios. What if sales fall 15%, or the biggest customer pays 30 days late?

Tools that do three-way forecasting with Xero

• Calxa: planning-first, with detailed budgets and linked forecasts.
• Fathom: mature forecasting with scenarios, alongside KPI analysis.
• Spotlight Reporting: forecasting included on every plan, aimed at accounting firms.
• Joiin: forecasting on the Pro plan, alongside consolidation for groups.

For a group, the forecast should be consolidated too, with intercompany loans and charges eliminated, just like actuals. A tool that consolidates and forecasts in one place saves rebuilding the group logic twice.

Making Xero's own forecast more accurate

If the built-in forecast is enough for now, a few habits make it more reliable:

• Enter bills as soon as they arrive, not when you pay them
• Set up repeating bills for rent, payroll, software and loan repayments
• Record expected VAT and tax payments as bills
• Adjust expected dates for customers who habitually pay late
• Add known one-off receipts and payments manually
• Review the forecast weekly, not monthly

The 13-week cash flow forecast

Between Xero's short-term view and a full three-way forecast sits the tool many finance teams use when cash is tight: the 13-week cash flow forecast. It covers one quarter, week by week, and it's built from expected receipts and payments, not from the P&L.

In this example, week 4 is the pinch point: payroll, a supplier run and a quarterly VAT payment land together. Seeing that three weeks ahead gives time to chase debtors or agree terms with a supplier. Update the forecast every week with actual bank movements, and roll it forward so it always shows 13 weeks.

Cash levers when the forecast looks tight

• Collect faster. Chase overdue invoices first, offer card or direct debit payment, and invoice on time.
• Pay on terms, not early. Pay suppliers when due rather than when invoices arrive, without damaging relationships.
• Talk to HMRC or the tax authority early if a tax payment is a problem; time-to-pay arrangements are possible in many countries.
• Review stock. Slow-moving stock is cash on a shelf.
• Delay discretionary spending such as non-urgent capital purchases or recruitment.
• Use facilities deliberately. An overdraft or invoice finance facility arranged before you need it is far easier than one requested in a crisis.

Forecasting for lenders and covenants

If you have a bank loan, the facility agreement may include covenants such as minimum cash, interest cover or debt to EBITDA. Lenders often ask for a forecast showing you'll stay within them. That's a three-way forecast job: covenants depend on profit, balance sheet and cash together. Build the covenant calculations into the forecast, so you can see months ahead whether you'll breach one and talk to the bank early. Lenders appreciate warning; they dislike surprises.

Forecasting a group

For a group, forecast each company, then consolidate, eliminating intercompany funding and charges just as you would actuals. Pay particular attention to intercompany loans: cash may sit in one company while the commitment sits in another. A tool that consolidates and forecasts in one place, such as Joiin's Pro plan, avoids rebuilding group logic in a separate model.

Reading Xero's forecast: what to look for

When you open the forecast, look for three things. First, the lowest point: the day your balance dips furthest, and whether it goes below the minimum you're comfortable with. Second, clusters: weeks where payroll, VAT and a supplier run coincide. Third, overdue invoices: Xero assumes they'll be paid, but if a customer is 60 days late, mentally remove that receipt and see what changes. A quick weekly look at these three is worth more than an elaborate monthly review.

Cash forecasting mistakes to avoid

• Assuming customers pay on time. Use actual payment behaviour, not invoice terms.
• Forgetting tax. VAT, payroll taxes and corporation tax are large, lumpy and predictable. Put them in.
• Ignoring capital spending. Vehicles, equipment and fit-outs don't appear in the P&L the way they hit cash.
• Not comparing forecast with actual. Each month, check where last month's forecast was wrong and adjust assumptions.
• One scenario only. Always look at a downside case. If the downside breaks a covenant or runs out of cash, plan now.

Forecasting cash in a seasonal business

Seasonal businesses such as tourism, retail, agriculture and education live and die by their cash forecast. The pattern is usually the same: costs build up before the busy season (stock, staff, marketing), cash arrives during it, and the quiet months draw it down again. A forecast that covers at least twelve months, month by month, shows the low point clearly, which is often just before the busy season starts. Arrange any facility you'll need well before that point, when your numbers look strongest. And compare each season with last year's actual cash curve; the shape repeats more reliably than the totals.

Frequently asked questions