What are cash inflow and outflow?

Answer

Cash inflow refers to a business or company's sources of money or income, while cash outflow refers to a business or company's expenses. A business survives if it can generate a larger cash inflow versus a cash outflow.

The best way to track a business or company's financial success is to create a cash flow statement, also known as a CFS. The CFS is the ideal way for a company to document its sources of income. It is also an efficient way to track expenses the company generates to stay afloat.

Examples of cash inflow include funds from investors, payment for work done by the company and sales of property or resources owned by the company. Examples of cash outflow include payments to other businesses, purchases of property needed for the survival of the company and employee wages.

Lenders and investors in a company rely heavily on the CFS of a company when it comes to determining whether the company is worth funding. Any business seeking loans or more investments must show stability in their cash flow. Examples of ways to improve cash flow are receiving customer payments sooner, ordering fewer supplies with more frequency and leasing equipment versus buying.

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