Getting paid, 29 October 2026
Why your Xero doesn't show your real position, and how to fix it
Xero only shows your real position when every bank line is reconciled, every supplier bill and sales invoice is entered, and money you're holding for HMRC is counted as owed. Most trade firms fall short on at least one: unreconciled lines, bills not yet entered, VAT and CIS sitting in the bank, or retention and unpaid invoices treated as cash.
Why doesn't Xero match my bank?
Usually because some bank lines aren't reconciled yet. Xero pulls transactions in from your bank feed, but until each one is matched to an invoice, bill or coded entry, the "balance in Xero" and the "statement balance" differ. A month of unreconciled card spends at the merchant and the difference runs to thousands.
Other causes: a bank feed that disconnected and stopped importing, transactions entered by hand and also imported from the feed (duplicates), and payments matched to the wrong invoice. On the Reconcile screen, the gap between the two balances is the first number to get to zero.
Why does the profit and loss look wrong?
Because the costs aren't all in. If supplier bills sit in an inbox or a van until you pay them, Xero records the sale when you invoice but the materials weeks later, sometimes in the next month or quarter. Profit looks high one month and low the next, and job costs look better than they are.
Miscoded entries make it worse. If costs are coded to the wrong accounts, the profit and loss can be wrong line after line, and you can't trust a single figure until it's redone. See how to check your P&L for errors.
What's the difference between your bank balance and your real position?
Your bank balance includes money that isn't yours. Take the VAT you've charged customers, the CIS you've deducted from subcontractors, and the bills and wages due this month, and the balance shrinks fast.
From a £38,000 bank balance to real free cash, building firm, end of month
Five-person VAT-registered builder using subcontractors. All bills and invoices entered and the bank reconciled.
| Bank balanceper statement | £38,000 |
| VAT owed for the quarter so faroutput VAT £14,200 − input VAT £5,900 | −£8,300 |
| CIS deducted from subbies, due to HMRC by the 22ndthis tax month | −£2,600 |
| Supplier bills due in the next 30 daysfrom aged payables | −£15,900 |
| Wages and PAYE due this monthpayroll | −£9,800 |
| Real free cash£38,000 − £8,300 − £2,600 − £15,900 − £9,800 | £1,400 |
That firm looks healthy on the bank app and has £1,400 of room. A roofing and cladding firm in Ireland we work with described the feeling before it fixed its numbers: "Whatever I was bringing in, was paying out."
CIS deductions are due to HMRC by the 22nd of the month if paid electronically, and the VAT on each quarter is due with the return. Treat both as owed from the day you collect them.
Why do invoices and retention mislead you?
Because Xero counts them as assets, and they are, but they aren't cash. A £21,000 sales ledger means nothing for this week's wages if the main contractor pays at 60 days. Retention can take a year or more to come back.
Look at aged receivables in Xero each week, invoice by invoice, not only the total. Anything past its due date needs chasing; see how to chase an unpaid invoice. If you can, keep retention in its own account code so it never gets mistaken for money on its way. For the cash cost of long payment terms, see main contractor payment terms.
How do you fix it?
Get the books current once, then keep them current weekly. The first catch-up is the hard part; after that it's twenty minutes a week. If you're months behind, start with catching up an invoice backlog.
Your numbers, not a promise. Change any figure to match your firm.
The calculator shows how much cash your payment terms tie up. Bring that figure down by invoicing on the day work finishes and chasing on the due date.
How often should you check it?
Reconcile weekly, look at the real free cash figure weekly, and have your accountant review quarterly. Xero's cash flow view looks ahead 30 days on Ignite, 60 on Grow, 90 on Comprehensive and 180 on Ultimate, as of October 2026, but only if bills and invoices are entered with their due dates. For a longer view, see a cash flow forecast for a trade firm.
The renovation builder we work with had nearly gone bust a few times without knowing his position. Once bills went into Xero against each job and the bank was reconciled weekly, he had a cash-flow forecast he could act on.
If your books are badly out or you suspect errors in past VAT returns, speak to your accountant before you correct them yourself.
Where Nexley fits
Nexley is the AI back office for UK trade firms: five AI assistants run your tenders, quotes, buying, scheduling and invoicing. It connects to the tools you already work in, you run it all from WhatsApp, and you approve everything. £799 a month.
Nexley enters supplier bills and receipts as they arrive, matches payments to invoices, chases overdue invoices and sends you a weekly WhatsApp summary of real free cash: bank, less VAT, CIS, bills and wages due. Anything it isn't sure about comes to you to approve, and your accountant still checks the returns.
Common questions
Why is my Xero balance different from my bank balance?
Usually because some bank lines aren't reconciled, a bank feed has stopped importing, or there are duplicates from manual entries. Get the statement balance and the Xero balance equal on the Reconcile screen before reading any report.
Is the money in my business account mine to spend?
Not all of it. VAT you've charged and CIS you've deducted are owed to HMRC, and supplier bills and wages are already committed. Take those off to find your real free cash.
Should I record bills when they arrive or when I pay them?
When they arrive, with their due date. That way your profit and loss and your cash flow forecast show the cost in the right month and the payment on the right day.
How far behind can I let reconciliation get?
No more than a week. After that, matches get harder, receipts go missing, and the picture in Xero drifts from the truth.
Sources
- Xero: Reconcile bank transactions
- Xero: All features, including cash flow forecast lengths
- Xero: Run financial reports
- GOV.UK: CIS, pay deductions to HMRC
- GOV.UK: Keeping VAT records
- GOV.UK: VAT domestic reverse charge for building and construction services
Every rule, rate and date above was checked against these sources on the date shown at the top.
Topic: Getting paid
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