Xero inventory management: track stock and cash flow

Published Saturday 28 February 2026

Table of contents

• What is Xero inventory management?
• Why inventory management matters for your business
• Understand the inventory types your business has
• How Xero's inventory features work
• Improve your forecasts with inventory data
• Track your inventory effectively
• Choose the right inventory management tools
• Xero plans and inventory features
• Inventory apps that integrate with Xero
• Smart inventory management improves cash flow
• FAQs on Xero inventory management

Key takeaways

• Upgrade to Xero's Grow plan to access full inventory management features that automatically track stock levels, connect inventory to invoices and purchase orders, and provide real-time reporting from any device.
• Balance your inventory carefully to avoid tying up cash in excess stock while ensuring you have enough to meet customer demand and prevent lost sales.
• Use inventory reports to identify seasonal trends, best-selling products, and slow-moving stock so you can make informed purchasing decisions and adjust stock levels before demand shifts.
• Consider integrating specialist inventory apps like Unleashed or Cin7 Core through Xero's App Store if you need advanced features like multi-location tracking, manufacturing capabilities, or barcode scanning.

What is Xero inventory management?

Xero inventory management is the built-in stock tracking feature within Xero's cloud accounting software. It lets you monitor stock levels, track costs, and connect inventory directly to your invoices and purchase orders.

Key features include:

• Real-time stock tracking: See current quantities as sales and purchases happen
• Automatic updates: Stock levels adjust when you create invoices or bills
• Purchase order management: Track orders to suppliers and expected deliveries
• Inventory reports: View stock valuations, movement, and item performance
• Cloud access: Check inventory from any device, anywhere

Xero's inventory tools suit small businesses selling physical products. For businesses with complex needs like manufacturing or multi-location warehousing, Xero connects to specialist inventory apps through its app marketplace.

Why inventory management matters for your business

Inventory is money sitting on your shelves. How you manage it directly affects your cash flow and profitability.

Stock that sits too long ties up cash you could use elsewhere. Excess inventory creates hidden costs:

• Lost revenue: Unsold items don't generate income
• Storage expenses: Warehousing and inventory accounting add up
• Wasted space: Stored items block room for profitable stock
• Depreciation risk: Products may deteriorate or become obsolete
• Security concerns: Items could be damaged or stolen

Too little inventory creates problems too. When demand spikes and you can't deliver, you'll miss sales and lose customers to competitors.

The goal is balance: enough stock to meet demand without tying up unnecessary cash.

Understand the inventory types your business has

Inventory types determine how you track, store, and value your stock. Most businesses deal with three main categories:

Raw materials

Raw materials are the basic components used to create your products. For manufacturing businesses, these might include timber, fabric, or electronic components. They often require significant storage space.

Work in progress (WIP)

Work in progress (WIP) refers to partially completed goods still in production. Examples include furniture awaiting assembly or garments needing finishing touches.

Finished goods

Finished goods are products ready for sale to customers. These may go to distributors or sell directly to end buyers.

Each category depends on the others. Without enough raw materials, you can't produce finished goods. If finished goods sales drop, raw materials accumulate. Tracking all three helps you spot imbalances early.

How Xero's inventory features work

Xero's inventory tools integrate directly with your everyday accounting tasks. Here's how the key features help you manage stock efficiently.

Track stock levels automatically

Automatic stock tracking updates your inventory counts in real time. When you create a sales invoice, Xero reduces the stock quantity. When you record a purchase, it adds to your count.

This means you always see accurate stock levels without manual updates. Set up low stock alerts to know when items need reordering before you run out.

Add inventory to invoices and purchase orders

Inventory items link directly to your sales and purchasing workflows. When creating an invoice, select the item from your inventory list. Xero automatically:

• pulls in the item description and price
• reduces the stock count
• updates your cost of goods sold

The same applies to purchase orders. Select items you need to restock, send the order to your supplier, and Xero tracks what's on order versus what's in hand.

Get insights from inventory reports

Inventory reports show you what's selling, what's sitting, and what it's all worth. Key reports include:

• Inventory item summary: Current quantities and values for all items
• Inventory item details: Movement history for individual products
• Stock on hand: What you have available right now

Use these insights to spot slow-moving stock, identify your best sellers, and make informed purchasing decisions.

Improve your forecasts with inventory data

Demand forecasting helps you stock the right products at the right time. Understanding how sales vary prevents both stockouts and excess inventory.

Look for patterns in your sales data:

• Seasonal trends: Which products sell better at certain times of year
• Growth patterns: Items gaining or losing popularity over time
• External factors: Events or conditions that affect buying behaviour

Accounting software like Xero generates reports from past sales data. Use these insights to identify your best sellers and adjust stock levels before demand shifts.

Track your inventory effectively

Inventory tracking means knowing exactly what stock you have and where it is at any moment. This becomes more complex as your business grows.

Different inventory types need different tracking approaches:

• Raw materials: Typically stay in one location and are easier to monitor
• Work in progress: Moves through production stages and requires frequent updates
• Finished goods: Need tracking from warehouse to customer delivery

Common tracking methods include:

• Barcode scanning: The traditional approach, still widely used and reliable
• Radio-frequency identification (RFID) tags: Faster and more flexible, with costs dropping steadily
• Cloud-based software: Provides real-time visibility from anywhere, on any device

The best systems track products at every stage, giving you a complete picture of stock movement.

Choose the right inventory management tools

Dedicated inventory software outperforms spreadsheets for stock management. The right tool saves time and reduces costly errors.

Spreadsheets fall short for inventory because they:

• Limit collaboration: Multiple users can't easily edit at once
• Risk data loss: Entries get deleted, and files can be lost entirely
• Require manual backups: Without them, you lose everything
• Lack purpose-built features: They weren't designed for stock control

Inventory management software built for the job offers clear advantages:

• Accounting integration: Connects stock levels directly to your financials
• Automatic updates: No manual backups or software upgrades needed
• Anywhere access: Check and manage inventory from any device
• Real-time accuracy: See current stock levels instantly

Cloud-based tools like Xero handle the technical work, so you can focus on running your business.

Xero plans and inventory features

Xero's Grow plan includes full inventory management features. The Starter and Standard plans don't include inventory tracking.

Here's what each plan offers for inventory:

• Starter: No inventory features included
• Standard: No inventory features included
• Grow: Full inventory tracking, purchase orders, and inventory reports

If you're currently on Starter or Standard and need inventory management, you can upgrade to Grow through your Xero subscription settings.

The Grow plan also includes multi-currency support, project tracking, and expenses management. View current pricing and features on the Xero pricing page.

Inventory apps that integrate with Xero

Xero's native inventory features work well for straightforward stock tracking. Businesses with more complex needs can connect specialist inventory apps through the Xero App Store.

Consider an inventory app if you need:

• Multi-location tracking: Stock across multiple warehouses or stores
• Manufacturing features: Bill of materials, production planning, batch tracking
• Advanced forecasting: Demand planning and automated reordering
• Barcode scanning: Mobile scanning for stocktakes and receiving
• E-commerce integration: Syncing with online sales platforms

Popular inventory apps that integrate with Xero include:

• Unleashed: Comprehensive inventory management for product businesses
• Cin7 Core: Inventory, point of sale, and e-commerce in one platform
• Cin7 Omni: Enterprise-level inventory for larger operations
• Katana: Manufacturing-focused with production planning features
• Dear Inventory: Multi-channel inventory and order management

These apps sync data with Xero automatically, keeping your financials accurate without manual entry. Browse all options in the Xero App Store inventory category.

Smart inventory management improves cash flow

Smart inventory management directly improves cash flow. The less money tied up in unproductive stock, the more you have for growth, wages, and day-to-day operations.

An efficient system delivers measurable benefits:

• Reduced waste: Less stock expires, deteriorates, or becomes obsolete
• Faster turnover: Items spend less time sitting in your warehouse
• Better forecasting: Predict demand based on real data, not guesswork
• Clearer financials: See exactly how inventory affects your bottom line

When inventory tracking connects to your accounting software, you get the full picture: stock levels, costs, and cash flow all visible in one place, accessible from anywhere.

Ready to streamline your inventory management? Xero's Grow plan includes built-in inventory tracking with real-time updates and insightful reporting. Get one month free and see how much time you can save.

FAQs on Xero inventory management

Here are answers to common questions about using Xero for inventory management.

Does Xero have an inventory management system?

Yes, Xero includes built-in inventory management in the Grow plan. It tracks stock levels, connects inventory to invoices and purchase orders, and provides inventory reports.

Which Xero plan includes inventory management?

The Grow plan includes full inventory management features. Starter and Standard plans don't include inventory tracking.

What inventory apps integrate with Xero?

Popular options include Unleashed, Cin7 Core, Cin7 Omni, Katana, and Dear Inventory. Browse all inventory apps in the Xero App Store.

How do I set up inventory tracking in Xero?

To set up inventory tracking in Xero:

1. Go to Business > Products and Services > Add Item
2. Enter the item name, purchase and sale prices
3. Enable 'Track item' to monitor stock levels

Can Xero handle inventory for manufacturing and retail businesses?

Xero's native features suit retail businesses with straightforward stock tracking. Manufacturing businesses typically need a specialist app like Katana or Unleashed that integrates with Xero for production planning and bill of materials.