Business revision

Cash flow

Cash flow

Cash flow is the movement of money in and out of the business.

  • Cash flows into the business as receipts, eg from cash received from selling products or from loans.
  • Cash flows out of the business as payments, eg to pay wages, supplies and interest on loans.
  • Net cash flow is the difference between money in and money out.
  • Profit and cash flow are two very different things. Cash flow is simply about money coming and going from the business.

    How can a business improve it's cash flow?

    A business can improve its cash flow by:

    • Reducing cash outflows, eg by delaying the payment of bills, securing better trade credit terms or factoring.
    • Increasing cash inflows, eg by chasing debtors, selling assets or securing an overdraft.