Glossary / Cashflow


Cash flow refers to the movement of money into and out of a business or individual's bank account over a specific period of time. It is a crucial aspect of financial management as it helps determine the liquidity and financial health of an entity. Positive cash flow occurs when the inflow of cash exceeds the outflow, resulting in a surplus of funds. This is generally considered favorable as it allows for the payment of expenses, debt reduction, and investment in growth opportunities. Negative cash flow, on the other hand, occurs when the outflow of cash exceeds the inflow, resulting in a deficit of funds. This can be problematic as it may lead to difficulties in meeting financial obligations, such as paying bills or servicing debt. Managing cash flow effectively involves monitoring and forecasting cash inflows and outflows, ensuring that there is sufficient liquidity to cover expenses and obligations. This can be achieved through various strategies, such as improving collections from customers, negotiating favorable payment terms with suppliers, and controlling expenses. Cash flow analysis is an important tool for assessing the financial performance and stability of a business. It helps identify potential cash flow problems, such as periods of negative cash flow or cash flow gaps, and allows for proactive measures to be taken to address these issues. Overall, maintaining a healthy cash flow is essential for the financial sustainability and success of any business or individual.