Head of Insight AccountingWEB
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Xero eyes cashflow forecasting

Xero signalled its plans to create a short-term cashflow forecasting tool from the stage at Xerocon Brisbane this week, sending a new shockwave through the forecasting app community.

4th Sep 2019
Head of Insight AccountingWEB
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Xero cashflow forecasting prototype
Xero
Xero cashflow forecasting prototype

Xero chief product and partner officer Anna Curzon revealed the new cashflow concept on stage at Xerocon Brisbane and drew back the curtain on a a single sign-on system for leading apps. Practice Ignition, ServiceM8, SuiteFiles and Float were among the first developers included in the announcement.

Edinburgh-based Float may be inside the Xero tent for the single sign-on initiative, but will be feeling a draft down its neck with Xero’s plans to move into its core cash forecasting patch.

Float and its younger rival Fluidly have galvanised the UK forecasting app marketplace by focusing on cashflow issues. Between them, these two accounted for well over 50% of the ratings in this year’s AccountingWEB software survey. The growth of these tools has been particularly evident among small business users rather than practitioners and the overall number of forecasting app users in our survey has more than doubled since 2017.

Such growth is hard to ignore, particularly since Xero has been talking up cash management issues throughout 2019, citing New York Federal Reserve estimates that 82% of small business failures are due to poor understanding and management of cashflow.

“Our research shows that getting bills paid on time is still significant problem for business,” Xero UK managing director Gary Turner told AccountingWEB in June, when the company unveiled a new payment integration with Stripe.

Taking hold of the short-term cash picture is another step to alerting users when they may need to deal with emerging problems. Xero’s prototype will plug into the user’s bank account and provide a default 30-day cashflow forecast, which will be able to switch to a week-ahead view.

A brief blog post on the announcement explained that the forecasting tool is still very much at the experimental phase and invited users to get involved with beta testing the new functionality ahead of its official launch in early 2020. 

It’s not the first time that Xero has moved into territory occupied by its independent developer partners. The swift acceptance of Xero Expenses by users has cut the market share of pioneering data and expenses capture developers such as Receipt Bank and AutoEntry and last year Xero acquired data collection specialist Hubdoc for US$70m.

Xero has built up a fund for other strategic acquisitions. With at least 14 out of the 96 reporting apps listed in the Xero marketplace mentioning cash forecasts among their features, there is plenty of choice if Xero did want to buy rather than build its cashflow offering. 

Given the current growth rates, evident user distress around cash flow and the potential end-to-end potential for integrated payment, prediction and short-term finance solutions it appears that this is an area where Xero has decided it wants to control its own destiny. But with the underlying platform offering similar capabilities, will there still be room for all those independent cash flow products?

Fluidly founder Caroline Plumb acknowledged the impact Xero’s move would have, but insisted that her brand of “intelligent cashflow” would have a place as the accounting platform expanded.

“Cashflow developers are always flattered when an incumbent recognises the importance of a category you’ve been building,” Plumb said.

“Looking at the imagery Xero has released (see above), it looks to be limited to forecasting figures based on updating bills and invoices rather than when people pay. It’s more of a proof of concept that will whet the appetite for a fuller solution.

“They’re focusing on invoice due dates, but no customer actually pays on their due date. To make a good cashflow forecast, you’ve got to capture all the inflows and outflows, including things like rent and overheads that aren’t invoiced.”

Float founder and CEO Colin Hewitt responded from Brisbane that it was great to see Xero adding this functionality. “Cashflow has been undervalued and represented historically,” he said. “Xero acknowledging this and adding it to their core platform is a positive move. We really welcome it for plugging a gap for really early stage businesses that are just getting started with forecasting cashflow.”

With so much growth in the category, Hewitt acknowledged that it would get more competitive – but that would help motivate his team to deliver new innovations. “One of the benefits we have being small and agile is that we can focus on a smaller vertical of customers rather than building something for everyone,” he said.

A cameo appearance for Xero HQ VAT

The Xerocon audience in Brisbane was also treated to the news that Xero HQ VAT is now live and available to all UK accounting partners. This extension comes free with existing subscriptions and gives tax advisers new data from HMRC on the progress of clients’ Making Tax Digital VAT returns.

With the first stagger group of VAT clients through the filing process and the next deadline falling at the end of this week, it’s a welcome addition to Xero HQ. What the audience in Brisbane made of it is another question. UK accountants who want to hear more about the company’s plans for MTD, cashflow forecasting and other product plans should make a note in their diaries for Xerocon London, due to be held at ExCel on 13-14 November.

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By GONKO
05th Sep 2019 14:57

They are a bit late to the party on this to be fair. Standard functionality in the likes of Sage 50 Accounts to report on cashflows based on revenue/expenses/overheads. This can also be pulled into excel for further analysis too.

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By davidbrokerage
16th Sep 2019 10:35

Just a shame Sage 50 is backwards in almost every other way. The future is cloud and not badly connected cloud desktop software with expensive yearly upgrades.

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By GONKO
17th Sep 2019 13:09

It appears you know little about Sage 50 to be fair. If you run both side by side, Sage 50 is in a different league. Perhaps you can give an example where it is backward in "almost every other way"?

I don't know what you refer to by 'badly connected'...?
It is connected 100% of the time with real-time snycing.

If cloud-native is absolutely needed for a finance team, then a compromise must be made I guess.

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