What is cash flow?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Cash flow is the movement of money into and out of a business. Money comes in from cash sales, customer payments and grants, and goes out on stock, rent, wages, utilities and other bills. When more comes in than goes out over a period, cash flow is positive; when less does, it is negative.
Cash flow is about timing. A business can be profitable and still run short of money if customers pay slowly, stock has to be bought well before it sells, or large bills land close together. A month that ends with positive cash flow can still contain weeks where more went out than came in.
Bookkeeping is what makes cash flow visible. Up-to-date records of invoices sent, bills received and bank transactions show what is owed to the business and what it owes, so the money due in and out over the coming weeks can be seen, not just today's bank balance.
In Australia
business.gov.au defines cash flow as the money flowing in and out of a business. Its guidance on improving cash flow notes that cash flow can be unpredictable, because things outside your control, such as rising material costs or seasonal swings, change how money moves through a business, and suggests planning to have enough cash to get through known quiet periods.
Its guide to managing cash flow sets out practical steps, including keeping records of all sales and costs, sending clear invoices as soon as you make a sale, setting payment terms, following up customers who have not paid and reviewing your cash flow statement regularly.
Worked example
| Week | Cash in (AUD) | Cash out (AUD) | Net cash flow (AUD) |
|---|---|---|---|
| Week 1 | 6,200.00 | 4,100.00 | 2,100.00 |
| Week 2 | 3,400.00 | 5,900.00 | -2,500.00 |
| Week 3 | 7,800.00 | 3,600.00 | 4,200.00 |
| Week 4 | 2,900.00 | 6,300.00 | -3,400.00 |
| Month | 20,300.00 | 19,900.00 | 400.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Judging cash flow from the bank balance alone, without allowing for bills already received and money customers still owe.
- Reading money from a new loan as if it came from trading.
- Letting invoicing fall behind, which pushes back the day customers pay.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Improve your cash flow
business.gov.au, Australian Government. Current at 16 October 2026, released 20 May 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Guide to managing cash flow
business.gov.au, Australian Government. Current at 15 October 2026, released 22 December 2025. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.