The cash inflow shows the income of a company within a certain period of time. Together with the cash outflow, it results in the cash flow and thus plays an important role in financing the operational area. Here we show you what cash inflow includes, how it is calculated and how it can be improved.
The cash inflow is the incoming part of the cash flow. It indicates how high the income of a company is and thus the amount of funds that are available to finance operations and to form reserves.
Cash inflow, like total cash flow, is a highly fluctuating variable that changes daily depending on how many incoming transactions take place in the company's accounts or how much cash is generated. It is important to monitor it so that you always have enough funds to pay your bills and make investments.
Some examples of cash inflow are:
- Revenue from customer payments
- Cash receipts from sales
- Taking out a loan
- Tax refunds
- Returns or dividend payments from investments
- Interest income
The counterpart to cash inflow is cash outflow. This represents all outgoing cash flows that flow out of the company. A cash outflow arises, for example, when you pay bills, transfer employees' salaries and make all other expenditures that are necessary to finance the operational area.
The following formula is used to calculate the cash inflow:
Total cash inflow in period = Cash inflow 1 + Cash inflow 2 + ... + Cash inflow n
This means that all cash inflows within a certain period are added up and the total cash inflow for this period is obtained. Each individual cash inflow represents a single transaction, for example an incoming customer payment on the business account, or a cash receipt from the sale of goods to a customer.
In order to accurately calculate the total cash inflow within a period, it is important to only add up the individual cash inflows that actually took place during this period.
For example, if you issue an invoice to a customer with an invoice date of 20/06/2022 and the customer does not pay until 02/07/2022, the associated cash inflow counts towards the total cash inflow in July and not in June.
Cash inflow includes not only incoming customer payments on the business accounts, but also cash receipts and cash inflows generated from other income, for example when inventory or shares are sold. Each of these transactions then represents a cash inflow and must be included in the calculation.
Cash inflow problems can occur for many reasons, which can be external or internal, for example:
- Falling customer demand
- Long payment terms, leading to delayed cash inflows
- Delivery problems leading to a production standstill
- High cash outflows that regularly exceed inflows and thus result in a cash shortage
Depending on where the cause of the cash inflow problems lies, measures must be taken to increase cash inflow. If customer demand is falling, it must be analysed why. Is the competition better or is the market saturated? Then strategies have to be defined on how to react. Do you dedicate yourself to a new product or do you equip the old one with new features?
Granting customers long payment periods means that they have to wait longer for payment. The cash inflow is therefore delayed. If a company does not have enough cash reserves to finance its operations despite delayed revenues, a cash shortage can occur. A simple measure for this is to shorten payment periods or to encourage customers to pay in advance.
If cash inflow problems occur because production stops due to delivery problems, you can at least plan better for the future: if you have several suppliers instead of one, you reduce the risk of delivery problems. Depending on the order situation and expectations, more can already be purchased so that you have a full warehouse and the delivery problems have little or no impact.
If everything is fine with the cash inflow and it can no longer be optimised, but cash shortages still occur, the cash outflow should also be checked, because it is then too high. The higher the expenses of a company, the less free cash it has available. In this case, you should check how you can reduce costs in your company in the long term.