Xero’s Statement of Cash Flows shows the actual cash moving in and out of your business over a chosen period, and it’s the report to run when you need to know whether you have cash to pay the bills. Below, we cover how to run it, how to read each section and what to do once you’ve found a problem, plus where Xero’s short-term forecasting tools fit alongside it.
TL;DR:
- Accurate setup of bank rules and regular reconciliation are crucial to prevent miscategorization and ensure reliable cash flow reporting.
- The operating section indicates the health of day-to-day cash flow, often requiring immediate focus if cash is tight despite profit.
- Short-term forecasting tools project cash positions over 7 to 90 days, while the statement of cash flows shows actual past cash movements.
- Comparing cash flow to profit reveals timing mismatches, such as slow-paying customers inflating profit without immediate cash impact.
- Maintaining a routine of weekly forecast checks, monthly statements, and quarterly long-term planning optimizes cash management.
Table of Contents
- How to run the Statement of Cash Flows in Xero
- What operating, investing and financing actually mean
- Reading the numbers and deciding what to do next
- Statement versus forecast: using Xero’s historical and predictive tools together
- Common setup mistakes that distort the report
- A worked example and a simple checklist
- How a dedicated online accountant helps you act on the numbers
- Balancing statements and forecasts for everyday cash control
- Get help setting up Xero cash flow reporting properly
- FAQ
- Sources
How to run the Statement of Cash Flows in Xero
The report lives under Reporting, and once you know the path it takes seconds to pull up.
- Go to Reporting, then All Reports, and open the Statement of Cash Flows – Direct Method.
- Choose your date range: a single month works for a quick health check, a quarter is better for spotting trends.
- Add a comparison period (previous month, quarter or year) to see whether a shortfall is new or recurring.
- Use the filters to merge or split debits and credits, which keeps the report readable when you have dozens of small transactions.
- Click any figure to drill down to account movements and see the exact transactions behind it.
- Export or print the report as a PDF or spreadsheet once you’re happy with the layout, useful for sharing with a bookkeeper or lender.
Xero’s own documentation confirms the report only includes cash-based transactions and sorts them by account type into operating, investing and financing activities. That sorting is what makes the next step, reading the sections, straightforward rather than guesswork.
What operating, investing and financing actually mean
Each section groups a different kind of cash movement, and treating them separately stops you misreading a healthy business as a struggling one.
- Operating activities cover day-to-day trading: cash from customers, payments to suppliers, wages and tax. This is usually the section to watch first.
- Investing activities cover asset purchases and sales, such as buying equipment or a vehicle. A negative figure here is often a good sign, since it usually means you’re investing in growth.
- Financing activities cover owner contributions, loan drawdowns and loan repayments, plus dividends. A spike here often explains a cash injection that operating activities alone wouldn’t show.
- Cash summary reconciles the opening and closing cash position, which should match your bank balance once everything is accounted for.
Reading the three activity sections together, rather than fixating on the bottom line, is what turns the report from a number into a diagnosis.
Reading the numbers and deciding what to do next
A cash flow statement is only useful once it changes what you do next. Start by comparing operating cash flow to your profit figure: a profitable month with weak operating cash usually points to slow-paying customers or stock sitting unsold.
- Spot timing mismatches by checking whether sales were invoiced but not yet paid, which inflates profit without bringing in cash.
- Triage payments when cash is tight: VAT and payroll have fixed deadlines and penalties, so they come first, then priority suppliers, then everything else.
- Drill into account movements on any section that looks off to find the specific invoices or bills responsible, rather than guessing.
- Consider short-term borrowing or delaying capital spend when the statement shows a genuine gap rather than a one-off timing issue.
This is also where the report’s limits show. It tells you what already happened, not what’s coming, which is why Xero also builds in forecasting tools for the days and weeks ahead.
Statement versus forecast: using Xero’s historical and predictive tools together
The Statement of Cash Flows is a record of what already happened. Xero’s short-term cash flow dashboard is a prediction, projecting your cash position over 7, 30, 60 and 90 days using live data from outstanding invoices and bills. Xero’s own guidance makes this distinction explicit and recommends using both rather than relying on one alone, since effective cash management combines a historical check with forward planning.
- Use the short-term dashboard for weekly decisions: can you cover payroll this Friday, or does a supplier payment need to wait?
- Add expected payment dates to overdue invoices in the dashboard to keep the forecast realistic rather than optimistic.
- For longer horizons, such as a 12-month rolling view or scenario testing before a major purchase, connect Xero to a specialist forecasting app from the Xero App Store.
A sensible rhythm is a monthly statement review backed by weekly short-term checks, with rolling forecasts layered on for anything further out.
Common setup mistakes that distort the report
Most misleading cash flow reports trace back to setup, not the report itself. Unreconciled transactions, miscategorised payments and stale bank rules all push figures into the wrong section or leave them out entirely.
- Order bank rules by specificity, since a broad rule placed above a specific one will miscategorise transactions before the correct rule ever runs, a known cause of reconciliation errors.
- Reconcile regularly, ideally weekly, so the statement reflects reality rather than a backlog.
- Check account mapping, since a loan repayment coded as an expense will land in operating activities instead of financing and skew both sections.
- Reality-check payment timings in the short-term dashboard before trusting its forecast, particularly if customers routinely pay later than their terms suggest.
Pro tip: Clear unreconciled transactions and review your bank rule order before you pull month-end reports, it takes minutes and saves you from chasing phantom shortfalls.
A worked example and a simple checklist
Say your Statement of Cash Flows for the month shows operating activities at £8,000, investing activities at negative £3,000 and financing activities at negative £1,500, giving a net increase in cash of £3,500. The investing figure reflects new equipment, a planned purchase, so it needs no action. The financing figure is a scheduled loan repayment, also expected. The operating figure, though positive, is lower than last month’s £12,000, so that’s the line to drill into first.
To turn this into decisions, export the figures into a spreadsheet or your usual reporting template and ask three questions: did operating cash fall because of slower customer payments or lower sales? Does the short-term dashboard show enough cash to meet VAT and payroll in the next fortnight? And is any planned capital spend still affordable given the trend?
How a dedicated online accountant helps you act on the numbers
Running the report is one thing, keeping bank rules, reconciliation and forecasts accurate month after month is another. Through Xero Online Accounting, we set up bank rules correctly, keep reconciliation current and build rolling forecasts alongside your monthly statement review, so the numbers you’re acting on are ones you can trust.
Balancing statements and forecasts for everyday cash control
Treat the Statement of Cash Flows as fact and the short-term dashboard as a control tool. The most reliable rhythm we see work for small businesses is a weekly glance at the short-term forecast, a monthly statement review, and a quarterly rolling forecast for anything bigger on the horizon.
— Kris
Get help setting up Xero cash flow reporting properly
Running the report is straightforward once it’s set up right, but bank rules, reconciliation and forecast accuracy take ongoing attention most business owners would rather not manage alone. Every client gets a dedicated accountant who handles that setup and reviews it with you regularly rather than leaving you to interpret the numbers solo.
A first engagement typically starts with a review of your current Xero setup, a correction of any bank rule or categorisation issues, and ongoing monthly reporting with cash flow built in. Our online accounting services cover exactly this, from Xero bookkeeping to rolling cash flow forecasts, and our accounting packages start from a competitive monthly price. Get in touch for a quote and we’ll take it from there.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
FAQ
How do I create a cash flow report in Xero?
Go to Reporting, then All Reports, and open the Statement of Cash Flows – Direct Method. Choose a date range and comparison period, then run the report to see your cash sorted into operating, investing and financing activities.
Can you do a cash flow forecast in Xero?
Yes, Xero includes a built-in short-term cash flow dashboard that projects your position over 7, 30, 60 and 90 days using real-time invoice and bill data. For longer rolling forecasts, you can connect Xero to a specialist forecasting app from the Xero App Store.
What is a cash flow report?
A cash flow report, or Statement of Cash Flows, records the actual cash moving in and out of a business over a set period, split into operating, investing and financing activities. It shows whether cash increased or decreased, separately from profit, which can be affected by unpaid invoices or non-cash items.
Why do some accountants find Xero challenging to work with?
Some practitioners find that Xero’s automation, particularly bank rules and categorisation, needs careful ordering and maintenance or it produces inaccurate reports. This isn’t unique to Xero, but it does mean the software rewards businesses that keep reconciliation and rule setup tidy rather than leaving it unattended.
How does a cash flow forecast differ from a cash flow statement?
A cash flow statement is historical, showing what has already happened to your cash. A cash flow forecast is predictive, projecting future cash positions so you can plan ahead, and Xero’s guidance recommends using both together rather than relying on either alone.
