The Basics of Cash Flow Management: Forecasting, Analyzing, and Improving Cash Flow

July 19, 2021


Cash flow is not revenue. Cash flow is not sales. Cash flow is not investment dollars. And yet, cash flow is the underlying current that drives expansion for businesses. A company with healthy cash flow management has the funds for growth and is able to pay its employees’ salaries, vendor bills, and taxes on time.

On the other hand, those who neglect cash flow management have been found to fail.

For most businesses, a healthy flow of cash is all about managing accounts payable and accounts receivables in a timely manner. Basically this means you know how much is going out and coming in at all times. Automated, streamlined cash-flow management systems can help increase accuracy in these terms.

Well-managed cash flow leads to strong relationships with partners, and the capacity to grow even further. One of the primary ways cash flow management leads to expansion is that it helps when negotiating for external funding. Lenders want to make sure that any shortcomings or expenses on a business’ record are both temporary and well-understood.

Here are some basics of cash flow management:

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Creating a Cash Flow Projection

A cash flow projection should be as accurate as you can make it. Do not tread toward rosier numbers just because they make your business look better. To make a realistic cash flow projection, track the following every month:

  • Working capital: The amount of cash available at the beginning of each month that a company can readily use.
  • Cash inflows: All inbound payments, sales revenue, and money generated through business.
  • Borrowing cash: All loans that provide money coming into the business.
  • Total cash flow: Total working capital plus operating and borrowing cash.
  • Cash outflows: An iterated breakdown of likely costs that the business will likely incur such as payroll, rent, loan payments, and accounts payable
  • Collection Days: The number of days your company waits to get paid
  • Payment Days: The number of days your company waits to pay your vendors
  • Inventory Turnover: The number of days inventory sits before being sold

For formal reporting of cash flow, a forecasting period of 12 months is usually standard. Predicting further than 12 months becomes a tad unreliable. Still need help building a cash flow forecast? Check out our 4 step guide on how to build a cash flow forecast.

Increasing Cash Flow

It would seem that if a company is growing, its cash flow is as well. This is not always the case. Profits are not cash flow; even if your business is seeing increased revenue, it is likely you’re seeing increased expenses. 

To start improving cash flow, first look internally. The processes and financial systems you have in place could be delaying, leaking, or misappropriating necessary cash. Much of the time, depreciated cash flow is about slow or unsteady billing cycles.

Whether you’re a supplier, a freelancer, or a company billing for its services, any lag in billing cycles can cause a dip in cash flow. While you may feel comfortable getting paid “in a month or so” your cash flow calculations do not favor tardiness! Here are some solutions:

  • Offer incentives like payment discounts that will encourage the customer to get their payment in on time.
  • Send invoice reminders. Your clients are as busy as you are.
  • Charge for late payments. Having a solid and well-defined invoice policy or net terms ensures late payment doesn’t get in the way of your cash flow.
  • Optimize your payment systems. Consider new means by which you’ll accept payment from your clients.

Look for More Funding

The faster a company grows, the more financing it often needs. Here are a few common forms of external financing for cash flow:

  • Lines of credit
  • Business credit cards
  • Business loans
  • Personal loans
  • Angel investment
  • Venture capital
  • Non-dilutive funding

How Settle can help your cash flow

At Settle, we offer modern solutions to manage your cash flow. Settle Working Capital helps free up capital by extending payment terms to allow more time to pay bills.

Settle’s powerful cash flow management platform helps automate your accounts payable and allows you to see up-to-date metrics to make cash flow forecasting easier. You can organize and pay vendors, track your bills and manage purcahse orders. If you’re interested in learning more, schedule a demo with Settle to learn more about how our software can help manage cash flow and increase your access to working capital. After all, cash is king.


Company Level Cash Flow Management | Ronie Navon

10 Critical Cash Flow Rules | Entrepreneur

Frequently Asked Questions about Small Business Finance | SBA

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*The information in this article is for informational purposes only and should not be construed as legal, financial, or professional advice. Settle makes no representation or warranties, expressed or implied, and in no event shall Settle or its affiliates, agents, or employees be liable to you or anyone else for any decision made or action taken in reliance on the information contained herein.