Cash flow is an income through sales or revenue from economic activity or any expenditure for the organization. In simpler terms cash flow is a kind of income or expenditure that affects the cash accounts. Cash flow concept is classified in to two main categories:
Cash inflow – It is also known as inward cash flow or just cash flow. Financing, ventures and sales generates this.
Cash outflow – Outward flow of cash is generated by many factors like purchases, investments, salaries and administrative expenditures.
Cash flow importance was realized in 2007 recession and there is a significant importance of cash flow to a business:
Cash flow gives the assurance of business organization income in any out side economic condition. It also brings the stable flow between inward and outward flow of cash.
Ensures Timely Payment
Both cash flow i.e. inflow and out flow ensures two principal payments. First is the salary of employees and second is the installment of all loans.
This return asset ratio ensures that, business is investing finances in the right avenues, and investments giving the better profit revenue.
Keeps You Out of Debt
Cash inflow has very important role in cash flow. It prevents investor from any kind of debt or small loans.
Saves Unnecessary Expenditure
Inward and outward cash flow eliminates all the unnecessary expenditures like piled up interest, late payment charges.
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