Net Cash Flow is the difference between the cash coming into a business and the cash going out of a business during a specific period of time and this is the net cash flow from 3 different areas.
The cash involved in the operation of the business including cash coming in from sales of services and/or products and cash going out from rent, wages, marketing and bills.
The cash involved in financing a business including outgoing cost of paying off debt, cash to shareholders and dividend payouts plus money incoming from borrowing or the issuing of equity
The cash involved in Investment activities including money incoming from investments or sale of an asset and money paid out for investments including the purchase of equipment or assets.
Net cash flow is calculated by subtracting outgoing cash flow from incoming cash flow over a specific period of time.
Net Cash Flow = Incoming cash (Operating, Financial, Investment) – Outgoing cash (Operating, Financial, Investment)
Net Cash Flow = CFO + CFF + CFI
Where CFO = Net Cash Flow from Operating Activities
CFF = Net Cash Flow from Financing Activities
CFI = Net Cash Flow from Investing Activities
It is essential to have cash in a business to ensure its day to day running costs are covered, if you cannot meet your bills you could quickly go out of business even if over a longer period of time your business is profitable.
However a positive net cash flow is not necessarily a good thing and a negative net cash flow necessarily a bad thing; it all depends on where the cash has come from or where it is going to.
Keeping a track on cash flow, whether it is positive or negative, over a particular period of time is very important in understanding how your business is managing and will manage in the future. It enables you to follow the flow of cash and identify periods when incoming/outgoing costs are higher or lower. This could be crucial when planning, in particular when decisions will involve cash coming into or leaving the business. Making sure you are not short of cash in your business for any period of time could be the key to your success.
Cash Flow is also important information for lenders and potential investors to see. A positive cash flow is important as they will be concerned about receiving repayment of a loan or a return on their investment.
There are various limitations of net cash flow, which include:
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
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