What is Cash Inflow?
Cash inflow represents the amount of money the company receives (inflows) from sales, investment or financing.
Examples of Cash Inflow are:
- Customer payments
- Investment profit
- Bank loan receipts
- Bank interest
- Grants & Funding proceeds
- Sale of fixed assets
- Supplier refunds
- Directors loans to the business
What is cash outflow?
Cash outflow represents the amount of money that is leaving the business. For example, cash outflows are salaries, wages, rates, the cost of renting an office, VAT, paying dividends to shareholders, etc.
The money that goes into the business is known as the cash inflow. It is not restricted only to your capital and investment; it could come from several sources such as sales. And/or financing. It is the opposite of what cash outflow stands for. Cash outflow is the money that leaves the business. It could be due to expenditure related to raw material, electricity, transportation, payments, or anything.Â
One does not have to be a business expert to understand that you need your cash inflows to be greater than your cash outflows if you want your business to grow.
All That You Need to Know About Cash Inflow
Cash inflow is often taught in school but on a service level. It most likely prompts again into a conversation when you decide to figure out how much you need to invest in a company. It is crucial to have a clear idea of the amount of cash inflow required because if it is exceeded by cash outflow, a company can become bankrupt. Yes, it does not happen overnight, but once the outflow starts exceeding the inflow, it becomes difficult to control the situation.
If you plan to invest in a company or a business, compare its cash inflow and outflow. The balance will help you get a clear idea regarding whether or not you should take the risk.
If you wish to check a company’s health, look at its CFS or the cash flow statement. With this statement’s help, you can identify all the sources through which the company is receiving money. You can also see the long-term trends of the company’s income and expenditure.
While it is important to see how the company has been performing and handling its money, one should not see its past performance as an indicator of its future. Whether the company has been successful or not in the past, you cannot say for sure if it will continue to stay on the same path. Your investment can bring you both profit and loss; therefore, be certain before putting your money into any business or company.
