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What is Cash flow?

Cash flow is the movement of money in and out of the business over time — distinct from profit, which is an accounting concept. You can be profitable on paper and still run out of cash if clients pay in 60 days and payroll hits every 14. 'Cash is king' exists because of this gap.

In practice

A profitable agency has $40,000 in receivables but $25,000 of payroll and rent due Friday. A short-term line of credit bridges the gap until clients pay.

Related terms

  • Accounts receivable — Money owed to the business by its customers.
  • Net 60 — Payment due in full 60 days after the invoice date.
  • Late fee — A penalty charged when an invoice is paid after its due date.

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Frequently asked questions

Profit vs. cash flow — what's the difference?

Profit is revenue minus expenses on paper; cash flow is actual money moving. A $50,000 invoice due in 60 days is profit today, cash in two months.

How do I forecast cash flow?

List expected inflows by date (invoice due dates, adjusted for how clients actually pay) against outflows (payroll, rent, suppliers). Update weekly — forecasts rot fast.

What's the fastest way to fix a cash crunch?

Invoice immediately, enforce shorter terms on new work, offer early-payment discounts, and call overdue accounts today. Then build a reserve so it doesn't recur.