What factors affect your cash flow?

Cash flow is the measure of cash inflow and outflow from your business. Positive cash flow means that you have more money coming into the business and negative cash flow means you have more money leaving. There are several things that can affect cash flow in the business world. This article will discuss what factors affect your cash flow and how to improve your cash flow.

Cash flow can be classified into three different categories:

1. Operational cash flows- cash received or expended as a result of core business activities.


2. Investment cash flows- cash received or expended through capital expenditure, investments, or acquisitions.


3. Financing cash flows- cash received or expended as a result of financial activities like interest and dividends.

Cash flow can be used to determine and measure different things in a company. It can be used to evaluate a performance, determine problems with liquidity, generate project rate of returns, or examine income growth of a business over time.

What factors can affect cash flow
There are many different factors that can affect cash flow. Here are some factors that might affect the cash flow in your business:

• Overhead expenses and indirect costs. If the price you are paying for your overhead exceeds the money you are bring in then this can become quite a problem as it will definitely limit your cash flow.


• A decrease in prices and payment performances of customers. When there is a decrease in prices it will obviously affect how much money you have coming into the business, as will customer performances. Although a decrease in prices will likely bring in more customers, customer performance can also affect a company's cash flow; especially poor performance.


• Poor credit ratings with customers. Why would this affect you? Well, if they're paying with poor credit it's likely that they won't be able to pay the money back which can set you back quite a bit, especially if you have numerous customers buying on credit.


• The economy. If the economy happens to go into a recession then businesses everywhere are going to suffer and cash flow will suffer greatly as well. The economy plays a large role in the amount of cash flow a company brings in.

Obviously these are only a few of the factors that can affect cash flow in a business. When you are in the business world it's important to consider all factors (if possible) that could possible affect your cash flow and plan accordingly so that you're not caught off guard.

How to improve your cash flow
Believe it or not, if you're not that great with handling cash flow there are things you can do to improve it.

• If you have a lot of customers that are slow payers then try increasing your prices. That might make up for the time it takes for them to pay for your product.


• Don't give every Tom, Dick, or Jane availability to using credit. If you know that their credit is poor then you might want to think twice about letting them use it. And if you have customers using credit make sure you instill late payment charges and fees.


• Check to see how much excess inventory you have in the back. You might be surprised at how much you just have sitting around on the shelves. Sell it to someone or another company that might actually be able to use it.


• Convert your debt into equity.

There are many factors that affect your cash flow. You have to be sure that you consider them all if you're part of the business world. Factors that affect cash flow can keep you in business or put you out of it.