Last Updated April 16, 2025
Effectively managing cash flow is a requisite of running any type of company, evidenced by cash flow problems being the leading cause for going out of business. With this in mind, it’s imperative to have an understanding of the two elements that make up cash flow–cash inflows and cash outflows.
Your ability to keep track of your cash inflow and outflow, and ultimately optimize these areas, should be at the forefront for you and anyone else assisting with your bookkeeping. Being more proactive when it comes to managing these cash flows will likely improve the lasting financial health of your business.
Therefore, continue reading as we walk you through examples of cash inflows and outflows, how to analyze your cash inflow vs. outflow, and how to better manage your funds moving forward.
What Is Cash Inflow?
Cash inflow refers to any cash that enters the business. This usually refers to the income a business produces through sales, as well as financing and even investment activities. Keep in mind, however, that something like a loan is technically a cash inflow, even though it will result in future cash outflows as you repay your debt.
How to Determine Cash Inflows
To determine your cash inflows, you must identify every source that is responsible for funds funneling into your business. You can start with your primary operating activities, which would include sales revenue, direct customer payments, and any interest income.
It’s important to note that only cash received is considered a cash inflow. Pending payments are not an inflow because no cash has actually entered your business. You should also tally inflows from any relevant investing or financing activities (such as interest earned or loan funds received).
Examples of Cash Inflows
The following are some of the most common types of cash inflows:
- Sales revenue
- Customer payments (and prepayments)
- Investment income
- Loans and other financing activities
- Proceeds from selling assets
- Grants and subsidies
- Royalties and licensing fees
What Is Cash Outflow?
Cash outflow includes all payments or activities that result in funds moving out of your business. Basically, any money that you spend to keep your business running qualifies as a cash outflow. This can include employee wages, rent and utilities, equipment purchases, and debt repayments. Your accounts payable are not considered a cash outflow until you have actually submitted payment for them.
How to Determine Cash Outflows
To determine your cash outflows, look at all payments made by your business during the period you are measuring. Any payments that result in cash leaving your business accounts is an outflow. Be mindful of recurring expenses, like rent and employee wages, as well as less common expenses, such as one-off equipment purchases.
Keeping all payments linked to business credit cards and bank accounts (rather than using a personal card) will make it easier to determine your total cash outflows.
Examples of Cash Outflows
Cash outflow may result from:
- Paying wages
- Rent, utilities, and other operational expenses
- Capital expenditures/asset purchases
- Research and development
- Expanding into a new market
- Debt repayments
Differences Between Cash Inflow and Cash Outflow
Here’s a quick breakdown of key cash inflow and outflow differences.
| Cash Inflows | Cash Outflows |
| Cash coming into the business | Cash moving out of the business |
| Examples include sales revenue, investment returns, and financing | Common examples include operational expenses, asset purchases, and debt payments |
| Cash inflow exceeding cash outflow is generally a positive sign | Cash outflow consistently exceeding cash inflow is generally a negative sign, as it could eventually lead to insolvency |
How to Analyze Cash Inflow and Outflow
Analyzing the inflow and outflow of cash is essential for keeping your business financially healthy. With a complete picture of where your money is coming from and where it’s going, you’ll have the information you need for effectively managing cash inflow and outflow.
The best way to analyze your cash flows is to build a cash flow statement, which will become one of your most essential financial documents. This document in particular will provide the information you need to help you make better money decisions for your business.
Creating a Statement of Cash Inflows and Outflows
To create a cash flow statement, set an opening and closing date for the time period you wish to measure (usually a one-month period). Record your opening balance for the period.
Next, calculate the total cash inflow and outflow from operating activities, financing activities, and business operations. Make sure to include all cash flow, including sometimes overlooked areas like cash inflow and outflow from investing activities. Add your cash inflows to the opening balance, then subtract the outflows to determine your closing balance. You can use the following formula:
Opening Balance + Cash Inflows – Cash Outflows = Closing Balance
This formula reveals whether your business brought in more cash than it spent during the period you’re measuring. If not, then you experienced negative cash flow, where expenses outweigh income.
Breaking down the present value of cash inflow and outflow helps you determine the overall financial health of your business. More importantly, a detailed look at cash inflows and outflows can help you identify common areas for improvement, such as addressing delayed customer payments.
In addition to making a statement of cash inflows vs. outflows, it will be much easier to analyze your finances if all business income and expenses are managed through business bank accounts and credit cards. In addition to using financial statements from your bank and credit card provider, maintaining your own record of all income and expenses (even something as simple as a spreadsheet) can help you more effectively track and analyze cash inflow and outflow. If you haven’t already, you should invest in accounting software. This software will provide the platform to keep your finances organized and stored in one place.
How to Effectively Manage Cash Inflow and Outflow
Understanding how to calculate cash inflow and outflow will enable you to take essential steps to improve your cash conversion cycle and better manage your business finances.
The following are a few tips that can help you improve your management of cash inflow and outflow:
- Create a business budget
- Follow up promptly on late customer payments
- Avoid tying up cash in excess inventory
- Carefully evaluate pricing options for your products and services
- Diversify revenue streams
- Use invoice factoring to collect payments quickly
- Reduce unnecessary expenses
- Closely monitor cash flow with your accounting software so you can proactively address issues
- Make frequent cash flow projections
In-Summary: Cash Inflow vs. Outflow
By understanding the cash inflow and outflow definition and properly classifying inflows and outflows of cash, you can gain a much clearer picture of the overall financial health of your business.
As a recap, cash inflow refers to all of the cash that comes into your business as a result of your normal business operations, as well as any investing or financing activities you might participate in. This includes getting a cash infusion through a business loan. Cash outflow covers all expenses that involve cash leaving the business. This includes your normal operating expenses, such as rent and employee salaries, as well as activities like debt repayment or research and development.
By consistently tracking your cash inflow and outflow with the help of a cash flow statement, you will have a full understanding of where your money is coming from and how it is being spent. This can help you refine your business strategy by optimizing pricing and invoicing, eliminating unnecessary expenses, or taking other important actions.
Cash Inflow vs. Outflow FAQs
Is depreciation a cash inflow or outflow?
Depreciation is actually not a cash inflow or outflow. It is a non-cash expense because no cash payment or receipt is involved. Instead, depreciation reflects the decline in the value of an asset (like a building or machinery) because of age or wear and tear. The value of depreciation is usually added back to net income on a cash flow statement to show your true cash position.
Is salvage value cash inflow or outflow?
Salvage value is the estimated value of an asset (like equipment or machinery) at the end of its useful life. Salvage value is considered a cash inflow because it represents the amount of money the company expects to receive for selling the asset.
Is accounts receivable a cash inflow or outflow?
Accounts receivables become a cash inflow when customers pay the money they owe on their invoices. When net income is reported on a cash flow statement, accounts receivable is not included in the net income because that income has not yet been received as a cash payment. When payments are made, the amount is subtracted from accounts receivable and added as a cash inflow.
Is accounts payable a cash inflow or outflow?
Accounts payable is typically considered a cash inflow. This is because the business is not immediately spending its cash, even though it is receiving materials, supplies, or a cash infusion. This is particularly true when taking out a loan. When a company pays its accounts payable to settle a debt, this results in a cash outflow.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
