Your Definitive Guide to Finally Understanding Cash Flow

Cash flow is the lifeblood of a business. Without it, you can’t pay suppliers, staff or taxes on time, no matter how good your sales figures look on paper.

Cash flow is not the same as sales, revenue or profit

Cash flow measures the actual money in your bank account or till, available right now to make payments. Sales, revenue and profit figures almost always include non-cash items, like depreciation, and don’t reflect payment timing. Sell on credit, and the sale happens today while the cash only arrives weeks or months later.

Why cash flow trips businesses up

A business can look profitable on its income statement while genuinely struggling, simply because the timing of money coming in doesn’t match the timing of money going out. If you haven’t been paid for last month’s sales by the time your own supplier payment is due, you have a cash flow problem regardless of what your profit figures say.

Tracking it properly

A basic spreadsheet, whether in Excel or Google Sheets, remains one of the simplest, most cost-effective ways to track cash flow. List every expected receipt and payment by date, both actual and anticipated, and compare the two columns. More cash coming in than going out means a positive cash flow position.

The real danger of poor cash flow

In the worst case, a business that can’t meet its financial obligations due to poor cash flow can fail entirely, even while profitable on paper. Short of that, poor cash flow still causes real damage: late staff payments, supplier penalties, and reputational harm that compounds over time.

Don’t forget VAT’s cash flow impact

VAT-registered businesses charge VAT on vatable sales but can also claim back VAT paid on vatable expenses. Depending on your specific position, this can mean paying SARS a net amount, requiring cash on hand, or receiving a net refund. Either way, factor it into your cash flow planning rather than treating it as an afterthought.

Practical ways to improve cash flow

• Increase sales while improving cost efficiency, cutting wasteful spend and buying stock at the best available prices.
• Get customers to pay faster. Where possible, favour cash-on-delivery over credit terms, or offer an early-settlement discount to incentivise faster payment, weighed against the cost of the discount itself.
• Pay suppliers as late as the agreed terms allow, without damaging the relationship, and negotiate longer credit terms proactively, ideally before you actually need them.
• Put a backup plan in place, such as a credit or overdraft facility, while your business doesn’t yet need it. Arranging credit takes time, and the worst moment to start that process is when you’re already in a cash crunch.

Frequently asked questions

Can a profitable business still run out of cash?

Yes. Profit on your income statement doesn’t account for payment timing. A business can be profitable and still fail to meet its obligations if cash isn’t arriving fast enough.

What’s the simplest way to start tracking cash flow?

A basic spreadsheet listing expected receipts and payments by date, comparing the two, is enough to start managing cash flow properly.

Should I offer customers credit terms or insist on upfront payment?

Where practical, cash on delivery or upfront payment reduces cash flow risk. If you do extend credit, consider an early-settlement discount to encourage faster payment.

When should I arrange a backup credit facility?

Before you need it. Arranging credit takes time, and businesses that wait until they’re already in a cash crunch often can’t secure it fast enough.

Managing the lifeblood of the business

Cash flow discipline isn’t glamorous, but it’s what keeps an otherwise healthy business from failing over a timing mismatch. Track it consistently, plan around VAT, and put a backup plan in place before you need one.

Originally published in October 2019. Updated September 2026 to refresh this cash flow guidance from FNB Business. The underlying cash flow management principles remain durable.