Sales revenue is the money generated by a company when they sell its products or services. However, all revenue is not cash. A portion of the revenue can be in the form of credit coming through accounts receivable; the other portion can be cash. In accounting terms, revenue and sales are generally substitutes for each other. 

Accounts receivable is the money your customer or clients owe to your business. This means the money has not yet been received. When you offer your products or services on credit to your clients, it is counted under accounts receivable.

It is a great technique to maintain stable cash flow by ensuring that you ultimately get paid for those credited goods and services on time. 

Also, check our article on accounts payable to know the difference between accounts payable and accounts receivable in detail.

Another way through which businesses generate cash is through loans and financing. By borrowing loans from banks and other financial institutions, companies can raise cash for certain emergencies or needful situations.

Of course, the money has to be paid back to the institution with interest; but for a period of time, you can get your cash flow running. 

Related read: 6 best small business loans in India

Next on the list of cash-generation methods is equity financing. This is a capital raising procedure where the business sells its company shares, basically giving the purchasing person an ownership part in the organization.

In exchange for equity, the company gets cash that can then be used to fulfill the short terms goals or urgent payments.

This is similar to equity financing in the way that you have to sell a part of the business but not give the purchaser the power to make decisions in the company. This happens when you sell assets of the company, such as inventory or parts of accounts receivable.

Basically, you get a loan by selling a part of the financial strength of the business. 

A government grant can be seen as a financial award given to businesses to reach a goal or appreciate their performance. There is no need to repay this money.

The government has no decision-making power in the company. If the grant has been extended to meet a certain goal, then constant checks and audits will be a by-product of the financial reward. 

On certain investments and shares purchased by the company, it generates interest and dividend money. This can be seen as a cash-generation method.

For example, if your company earns $100,000 profit in the first quarter, you can convince the board members to set aside a portion of this to invest in further growth of the company, and the rest can be paid to them as their share in the profit. 

In simple terms, operating cash flow is the money that is connected to the primary function of a business—selling the produced goods and services. Any cash generated from the basic business activity is categorized under this component. For example, cash generated from sales commission, sales of the goods, etc.

But operating cash flow also shows how much money is being spent on the manufacturing or the background work of selling the produce, so the cost of manufacturing or payments to suppliers. 

Keeping aside loans and investments, operating cash flow helps to determine how much cash a business can generate from simply just selling its products and services. If you see a positive cash flow, the business is moving in the right direction. However, if you see a negative cash flow, you need to take measures to improve sales or cut down costs.

Investing cash flow includes all activities that show the gains and losses earned by the company on investments between different reporting periods. In simpler terms, the cash earned from the investments made by the business and to the business and from selling any fixed assets of the company. 

A business cannot just run on the money it earns by selling its product or services; there are other methods used to generate cash flow and get investment from people apart from the owner and board members.

Along with this, selling any assets like equipment, plant, or property also results in positive cash flow for the business. You can use this money and re-invest in other profitable aspects to ensure better gains.

For example, you run a manufacturing unit. You can sell your equipment and land to get an influx of cash and make smarter investments for better returns. 

Financing cash flow refers to all the money spent and earned from borrowings. Dividend money of the shareholders, return of funds to the lending organization, repayment of long-term debt, etc., all are activities considered under this category. Any loan that the company borrows from banks or other financial institutions, any investments from angel investors or the board members is shown here.

 If you see a positive number for business financing, this means the business is able to make all repayments in time, and the cash raised from share and debt securities is paying out in a healthy manner.

However, if the numbers are negative, this means the business is paying more than it received. More debt, dividend payments, and purchasing the company shares back. 

Operating cash flow is an essential component used to determine how much cash the business generates from its core business activities. This is a major financial indicator to measure the success or goal achievement of any business. It indicates if the company is able to raise enough capital to keep the operation running. 

A positive cash flow shows that your business is performing well and is able to sell its produce in a profitable manner. In this, the company generates enough cash to pay for the basic functions and also takes out a good profit margin that can be further invested for the growth of the business.

However, if your numbers show negative cash flow, this means that your expenses are more than your earnings. This is where you will have to start planning cost-cutting measures, plan ways to increase revenue, or maybe even opt for getting external financing like loans or the sale of assets. 

Suggested read: What is capital expenditure (CapEx)? - Overview, types, and importance

To scale your business, you will have to invest in purchasing land, equipment, machinery, etc. Now, while running your business, you will have to sell the assets you already have to invest in getting new assets.

By evaluating the value and nature of your assets, you can determine the future operational potential of the company. Using this, you can also make changes in your procurement and investment plans. 

Basically, investing cash flow is an indicator used to check how the business is allocating its funds for long-term benefit. When a company sells its assets, it might seem like a move done to compensate for negative cash flow.

However, this is just short term. Instead, consider how these strategies would result in the future. So, for example, if you are a new company, you might decide to invest in different assets, like an investment run, in pursuit of expanding to new markets and increasing sales. This may result in a positive future revenue expansion for the company.

Also, you can explore the details of the procure-to-pay (P2P) cycle and delve into the link between cash flow and procurement in our in-depth article.

Financing cash is a benchmark that helps investors determine how much the company is raising through different financing sources and how often. Suppose the investors see that your company has more debt than the company can actually afford to pay off; they will back out. If your financing cash flow is healthy, investors will see potential in the company and will be inclined to offer capital. 

If your company aims to raise more capital for certain projects or purposes, you have to decide between debt or equity financing. The one you choose will depend on your existing debt value, financial health ratio, cost of capital, existing dividend share, etc.

Mostly when it comes to large mature organizations, they buy their own share back if the board feels that the market value is too less. This will increase the company's shareholder value, and the investors will get better dividends.

Cashflow simply refers to the money coming in and going out of your business. Basically, the net cash in and out of the business at a particular point in time.

However, this does not include the money debtors owe the company or supplier credit. This measures the flow at a point in time as an indicator of the business’s financial health. 

On the other hand, profit is the money that is retained after cutting out all costs and expenses. Profit is also called net income.

There are two types of profit—gross profit refers to the sum of money left after subtracting all direct costs; net profit is the money that is left after subtracting all other costs as well, such as taxes, operating costs, etc. 

Cash flow is recognized over a period of time, mostly quarterly or annually. This is because cash flow is literally a flow variable; you cannot get the correct analysis by just picking the cash flow data for one day.  

Profit is also measured over a period of time, but the difference is that it is measured when there is a substantial event or during business strategy planning. For example, when all the products have been sold, that is the time you calculate the profit you have earned. 

Cash flow is a measure used by investors to check whether the business has enough cash to run its expenses. Moreover, it also indicates if the business has to potential to repay its debts and loans. Overall, it helps in measuring the future capacity of the company. 

Profit metrics give investors the picture of how much the company is actually making and what will be the investor’s dividend.

For example, the production cost of the product has risen, which means the company will make a lesser profit, and the investor might lose interest. It is essential for investors to calculate the returns that come from the company’s profit.

Cash flow is a tricky variable. A company’s cash flow might be down at present, but the investments it is making using financing money might bring in a huge influx of cash and stabilize the future cash flow. 

Profit, on the other hand, is more about value than time. This is an indicator to show if the business is headed in the right direction. Long-term profitability means focusing on how the business earns with basic business planning and functions instead of selling assets.

If your business extends products to its customers on credit, it is important that they pay for those products within the given payment period. This is because even if it is a short period of time, your company does not get money for the products it sells.

So basically, inventory is getting sold, but there is no inflow of cash. Later customer payments create a tight spending situation for businesses. 

Every business has its peak seasons and low seasons. During the low seasons, it is normal not to have a positive cash flow.

However, your motive should be to maintain a stable cash flow using the current resources and profit made from the high-demand season.

The business market conditions can change anytime, or mishappenings can occur. None of this can be predicted. Hence, this means you might have to incur some unexpected expenses, such as a sudden fire in the office, infestation in your produce, etc. These expenses can put a significant hole in your pocket. Hence, keep aside some emergency funds always.

You might also be interested to read: Common business expenses and how to manage them?

Rapidly growing your business is a good thing. However, too fast of an expansion or growth leads to an increase in operational costs. Also, more investments are made in development. This brings about a strain on the business’s cash flow because at once you cannot spend on everything, other essential business expenses will suffer.

Be mindful of your business growth and invest in the right places at the right time, not all at once. 

Sometimes, you might get delayed with paying your vendors. This means you will have to pay the late fees or interest on the due amount. There might also be sudden issues with supplier payments like your vendor might ask for an early payment.

In all these situations, you have to use the existing business funds, and these unforeseen circumstances again restrict funds for other operations. 

When you do not manage your inventory properly, your business can face serious cash flow issues. So if your inventory is more than the customer demand, you are basically blocking your cash flow by investing in the produce that is not being sold.

On the other hand, if you do not have enough inventory to meet the customer demand, you are not taking advantage of the situation to generate more cash flow.

Also read, Inventory turnover ratio - What is it and how to calculate?

You can predict the market condition to a certain extent, but unforeseeable changes can create issues for your business’s cash flow. There are many events that create fluctuations in demand, for example, upgrades in management software, regulatory condition changes, etc.

Such situations will require your business to adapt quickly, and this will, of course, require more investment and expenses will be made. This will again restrict the business's cash flow. 

One of the basic cash flow flaws can occur because of your poor cash flow monitoring and planning. If you are not keeping an accurate track of all of your expenses and payments, you will not know how much you are earning and what measures need to be taken if the cash flow is running negative.

In fact, you will not be able to determine if the business cash flow is negative or positive if you don’t monitor it correctly. 

Cash flow is an essential indicator of the financial health of a business. Knowing how much the business is earning and how much it spends tells investors and other interested parties about the business's performance.

So, having a cash flow analysis to see where the business stands and what can be done to improve the situation for a better reputable impression and larger expansion is crucial.  

Cash flow analysis will also help you determine your liquidity and solvency capacity. There might be situations where you end up in urgent need of liquid cash. At that time, selling some of the business assets or using other financing methods is not a viable option.

Hence, cash analysis will help you always have a safe amount of liquid cash to fund any urgent requirement or even daily operations. 

How do you decide if you need to cut down the processing costs, or you need to invest more in a project to reap more benefits, or you need to shut down something completely because it is draining money? Through cash analysis? Strategic decision-making can only be done when you clearly have all the numbers before you. Shooting in the dark is not an option. 

Forecasting and future planning are important business functions. To avoid any risk or shortcomings in the future, you will have to analyze your current cash flow, compare the previous and expected numbers and then take necessary action.

Monitoring cash flow patterns will help you judge if, in the coming future, there can be any financial risks or shortages that will need to be combated with a contingency plan.

How do you convince investors to believe in your company and invest their money here? By showing them how much the company earns and what are the expected future earnings. You can calculate this by drawing a cash flow analysis.

Showing numbers of your current cash flow is essential as that is what makes people trust your brand and judge if your business is worth investing in. If you don’t have data to back your future plans, no one will be interested in giving you their money. 

As a cash analysis brings out the earnings or revenue generated by the business, you can easily spot areas of improvement. Identify cash flow patterns and spending behavior, and according to that, you’ll understand areas that can be optimized for better cash utilization.

Cash analysis will help you manage your working capital and control expenses for the overall increase in cash flow. 

As mentioned above, cash flow is an important measure to judge any business’s performance. Hence, one of the components considered for business valuation is cash flow.

Hence, a cash flow analysis becomes inevitable. This analysis will help you prove the business potential and make it a worthy investment entity. 

Cash flow analysis also helps businesses maintain compliance and do better expense reporting. When you know how is coming in through what areas and how much is being spent on what, you can ensure that everything is compliant with the company policies and rules.

A cash flow analysis gives you everything from total amounts to expense and income breakups, essential operation details, and more.

The first step to improve your cash flow management is to accelerate your accounts receivable collection process. This means that you need to implement changes and adopt systems that can help you speed up the process and also eliminate any errors.

Plus, put a strict payment due limit between 30 to 60 days. This will ensure that you are able to keep a stable cash flow. 

Next, an effective and good cash flow management strategy is optimizing inventory management. Avoid understocking or overstocking, as both these conditions will create cash flow problems.

Hence, it is advised to use automation software or specific inventory management systems to help you calculate the exact inventory requirement according to the market conditions and customer demands. 

Cash flow can also be improved by leveraging your vendor relationships. If you have a long enough or a good trustable relationship with your business vendor, you can ask them for negotiations and discounts. These can be reducing the overall supply cost, discounts on bulk purchases, an extension of payment due dates, etc. 

Another one of the cash flow management strategies for small businesses is to control and reduce expenses. You cannot have your employees recklessly sending.

This means you need to establish expense controls using tools like corporate cards and set up real-time transaction tracking for advanced reporting. Using these tools can help you identify money-draining areas and reduce expenses.

Improve your cash flow by smartly planning your pricing strategy. This means that you have to cover your costs and make profits, but you cannot charge more than what your competitors are charging because this will be the easiest way to lose customers.

For example, you can provide your customers with free shipping but cover yours by making a slight increase in the total cart price. 

This other strategy to improve cash flow management is tricky but works like a charm. You need to monitor the inflow and outflow of business cash carefully.

Distribute the time of your solid inflow and also properly time your vendor payments. This will help you have enough cash flow at all times.

For example, you can distribute your client payments over a span of 30-60 days and then plan your vendor payments according to the incoming payments. 

One of the best ways to improve cash flow is to cut down on processing time, eliminate any errors and save manual labor. This all happens easily through automation.

Different software like expense management solutions, invoice management, payment automation, etc., help your business automate most of the processes and make the whole process more efficient. 

To be able to negotiate terms with your vendor, you first need to have good relationships with your vendors. This means paying your vendor on time or before the due date.

Always being on top of the process and communicating openly with the vendors will help them build trust in your business. Negotiating terms then will be easier. 

Other than the cash that comes from the basic business activity of selling the produce, you should explore other financing options. So, even if you do not have enough cash flow from just selling the business products and services, you will have other revenue streams to fulfill the gap.

For example, if your business is facing a low-demand season, naturally, you will not have enough cash inflow the normal way. So, you can take up a small loan or sell some assets for a short period of time and then recover when things are better and back on track. 

To ensure that past problems and inefficiencies don’t repeat themselves, you need a solid future plan based on historical data. Hence while cash forecasting and planning, the first important thing is accurate past data.

Once you carefully scrutinize that data, you can easily identify the loopholes and past mistakes. Keeping those in mind while cash flow planning, you will be able to draw out a plan that will fix past problems and work like magic.

The next strategy is to plan your cash flow based on sales data. Pick up the last few years of sales numbers, and put them together with your current goals, marketing strategies, and existing market conditions.

This will help you predict the future demand for the product and any downfalls that might be caused because of customer preferences, and then you can make a solid plan of action. 

Cash flow forecasting is not only about anticipating the inflow. Outflow also has to be timed and planned to maintain stability. Hence, an expense projection. This includes all kinds of business expenses that are supposed to happen in the forthcoming period of time.

Having an expense projection can help in forecasting the approximate amount of revenue that the business is set to generate. 

What if another worldwide pandemic hits the globe suddenly? Or the essential raw material for your product becomes extremely expensive because there is a worldwide shortage? Or any other such scenario that affects the business’s product manufacturing or selling. What will you do then?

The answer to this lies in your forecasting and planning. Conducting scenario analysis will help you prepare the business for any kind of difficulties and what protocol should be followed in such times to bare the least possible effect on cash flow. 

Along with scenario analysis, also do sensitivity analysis. This means all variables affecting the cash flow of the business should be tested.

Any potential changes in these factors should be anticipated, and how they will affect the cash flow should also be determined. This means you’ll be able to plan for any significantly major fallouts that might happen. 

All important people related to the financial decisions of the company should be involved in the cash flow forecasting and planning process — finance team members, company stakeholders, senior management members, and any heads of departments.

All these people will bring new insights and specific data required for forecasting and planning. 

The correct cash flow strategy can be built with the help of timing the inflow and outflow of cash. This means you also have to analyze the customer payment and vendor invoice fulfillment behavior and timings throughout the year. Which are the ones that are essential and have to be paid at a fixed time? Which expenses are flexible and can be moved around for better stability? This, and more, can be determined by paying attention to cash flow timings. 

One of the smartest ways to ace the forecasting and planning process is automation. Forecasting and planning tools can take over all the calculation, data analysis, and processing tasks and give you the desired results just to make the final decisions.

This helps you save a lot of time that is just spent on gathering and processing data to make a sensible report and future decisions. 

One plan cannot fit all situations and at all times. You need to keep a regular check on the cash flow data and how the implemented plans are working.

This will help in upgrading the plan anytime something goes wrong. And for the future, you will know what works and how to implement plans for better results. 

● Business line of credit

A business line of credit is a fixed amount of money that you can borrow, and the payment can be made later. Essentially this type of financing is revolving, which means that you can use the credit amount, and once you repay it, your credit amount gets replenished. There is no interest payment required.

● Invoice financing

This is a financing method where you can get credit by keeping your high-value invoices as collateral. This helps you fulfill the urgent need for cash for activities like inventory purchases, vendor payments, repaying debt, etc.

Once your work is done, you can get those invoices back and pay the lender yourself, or you can direct your customer payments to the lender's account. However, do not let your customers know that the payments are going to a lender.

● Term loans

Term loans are long-term borrowings for all-size businesses. This credit money can be accessed up front with a decided every month interest installment and a specific repayment time. This is a traditional debt financing type with fixed or floating interest rate charges. However, getting this loan type is a little difficult if you do not have a good credit score. 

● Equity financing

Another long-term financing option is equity financing. You can raise capital by selling your company shares. This means the shareholder will be given a percentage of the profit the company makes and also a say in all the business decisions.

● Make a comprehensive cash flow forecast

Calculate your anticipated cash inflows and outflows for the upcoming months to spot any gaps and make appropriate preparations.

● Center around cash assortment

Carry out productive billing and assortment cycles to limit postpones in getting installments from clients.

● Control costs

Watch out for your costs and focus on fundamental uses. Find ways to cut costs without sacrificing the quality of your products or services.

● Figure income in light of seasonal patterns

Predict periods of high and low cash flow by analyzing past data. Change your planning and spending plans as needs be.

● Fabricate reserves of cash during peak seasons

Put away a piece of your benefits during peak periods to cover costs during slow months.

● Think about alternative sources of income

To maintain a more consistent cash flow throughout the year, look into opportunities to generate income during off-peak seasons or diversify your product or service offerings.

● Keep an eye on accounts receivable

In order to avoid having an accumulation of accounts receivable that could put a strain on your cash flow, ensure timely billing and follow-up on payments.

● Get additional funds

To support your company's expansion and provide a cushion for any temporary cash flow issues, look into financing options like loans, lines of credit, or investor partnerships.

● Plan for expanded costs

Forecast extra expenses related to development, like recruiting more staff or putting resources into new hardware, and consider them your income projections.

● Evaluate and change your spending plan

Take a look at your expenses and figure out where you can save money without sacrificing your main operations. Trim pointless costs and revise contracts with providers if conceivable.

● Further develop stock administration

To reduce carrying costs during a period of reduced sales, avoid overstocking and optimize your inventory levels.

● Investigate elective income streams

Diversify your product or service offerings or look for new markets to expand your revenue streams and meet shifting customer demands.

● Arrange expanded payment terms with providers

Demand broadened installment periods or haggle new terms with your sellers to work on your income temporarily.

● Think about short-term financing

To cover short-term cash flow shortfalls, investigate invoice discounting, factoring, and short-term loans.

● Put strict controls on cash flow

To effectively manage the crisis, keep an eye on your cash flow, keep a close eye on your expenses, and make quick adjustments.

Creditor liabilities address the sum a business owes to its providers. A cash outflow occurs when payments are made to settle accounts payable. Overseeing creditor liabilities permits a business to control the planning of these money surges, guaranteeing that installments are made on the chance to keep up with great merchant connections while expanding the utilization of accessible money.

Precise administration of accounts payable is pivotal for the determination of income. By checking installment terms, due dates, and outstanding solicitations, organizations can project their income needs precisely.

This aids in making arrangements for future money outpourings and guaranteeing that adequate assets are accessible to cover creditor liabilities commitments.

Successful administration of accounts payable cultivates great associations with providers. Keeping up with positive connections can prompt great installment terms, early payment limits, or broadened credit periods, which can help an organization's income by giving greater adaptability and expected cost investment funds.

Creditor liabilities are a piece of an organization's working capital, which is the distinction between current assets (cash, debt claims, stock) and current liabilities (creditor liabilities, gathered costs).

By successfully overseeing creditor liabilities, a business can enhance its functioning capital by decisively timing installments. The business is able to store cash in this way for a longer time, allowing it to invest in growth opportunities or potentially earn interest.

In rundown, overseeing creditor liabilities is a basic part of the management of cash flow. It permits organizations to advance money outpourings, decisively time installments, estimate income precisely, and keep up with solid associations with providers. Businesses can enhance their overall cash flow position and financial stability by effectively managing accounts payable.

By automating the invoice processing workflow, AP automation reduces paper-based processes and manual data entry. This mechanization speeds up the handling time, bringing about quicker endorsement and payment cycles.

Consequently, you can optimize your cash flow by paying your suppliers on time, taking advantage of discounts for early payments, and avoiding penalties for late payments.

Human errors like data duplication, incorrect entries, and misplaced invoices are common in manual data entry. AP robotization limits these mistakes by consequently catching information from solicitations and cross-referring to it with buy requests or agreements.

Discrepancies can be flagged by the system, preventing payment errors and allowing for prompt resolution. You can avoid unnecessary cash outflows and disputes by processing your invoices accurately.

Your accounts payable status is visible in real-time through AP automation. Invoice progress can be followed, payment due dates can be tracked, and comprehensive reports on your payables can be accessed.

With this upgraded permeability and control, you can all the more likely estimate your income, recognize possible bottlenecks, and proactively deal with your payment commitments. This empowers you to allot subsidies all the more productively, guaranteeing you have adequate money available to cover your payables.

Automated routing and approval workflows are made easier by AP automation. The system can send digital invoices to the appropriate stakeholders based on predefined rules instead of routing physical invoices for approval manually.

This mechanization speeds up the endorsement cycle, decreasing bottlenecks and killing postponements. Quicker endorsements mean solicitations can be paid expeditiously, enhancing your income management.

AP mechanization frameworks frequently give powerful, revealing, and investigation abilities. Using the data from your payables, you can use these tools to make precise cash flow forecasts.

These figures assist you with expecting future money needs, distinguishing potential income holes, and coming to informed conclusions about your payment cycles and subsidizing prerequisites.

Having an unmistakable comprehension of your income position empowers you to go to proactive lengths to keep up with sound liquidity.

Suggested read: All you need to know about cash flow statement

ERP (Enterprise Resource Planning) or accounting software, for example, can be seamlessly integrated with AP automation platforms. Because of this integration, payable data that is accurate and up-to-date is shared between various systems, reducing the need for manual data entry and the risk of errors.

Continuous mix likewise gives a comprehensive perspective on your monetary information, permitting you to settle on additional educated conclusions about the management of cash flow.

In outline, AP automation further develops cash management by speeding up receipt handling, improving precision, giving permeability and control, empowering quicker endorsement work processes, working with income anticipating, and coordinating with existing monetary frameworks.

Businesses can effectively manage their cash flow, maximize working capital, and enhance their overall financial health by optimizing the accounts payable procedure.

Bill Pay is a unique Volopay feature that helps you to create individual vendor accounts using which you can transfer payments insistently. This feature also helps you automate the invoice-to-pay process.

From receiving an invoice to making payments and updating your accounting books, the Bill Pay feature can do it all. 

You might be interested to read: All you need to know about B2B payments

Another cool Volopay feature is alerts and payment history. When you have an unpaid invoice that has to be paid in the near coming days, the Volopay system will send you a reminder alert.

Plus, with the payments history feature, you can avoid late payments and duplicate payments. 

Invoice management can be very tedious if you do not have a proper collection and management system.

Volopay collects all your invoices and syncs all information from email to accounting software. No more scattered invoices and late payments.

With the direct accounting automation feature, all bill payments and expenses are recorded in the accounting books. All minuscule details, like vendor name, invoice number, description, due date, etc., are automatically synced. Any changes made in the expense sheet will automatically be made in the accounting sheets as well. The system works vice-versa too. 

Using the accounts payable automation facility offered by Volopay, you can not only manage but also schedule your invoice payments. There are three ways to do this; the first is the basic custom payment scheduling, where you select a date and amount and schedule the payment for that day.

Next is just before the due date, so you don’t miss the due date but also get to use the money till the last moment so that extra interest can be earned. The third is whenever an expense is approved, you can schedule the payment immediately. 

Volopay essentially provides two broad money transfer networks: Domestic and International.

With the SWIFT method, you can easily transfer money, as it is a common method used by banks and other financial institutions.

Non-SWIFT payments are affordable and quick. Using these methods, you can make money transfer in more than 40 countries.