Just like blood nourishes the body, cash flow nourishes the business. Without blood, the body collapses; without cash flow, the business loses its ability to survive even though the profit report is still positive. Therefore, it is absolutely correct to say that cash flow is the “blood” of the business – determining its operational capacity, financial health and long-term development prospects.
Read the article below by Bizzi to learn more about the nature of cash flow, and grasp traditional management methods and especially automation solutions to ensure financial health.
What is Cash Flow? Differences and Core Concepts
What is cash flow? Cash Flow is the movement of cash and cash equivalents into and out of a business over a period of time. It reflects the ability to generate cash and use cash for business, investment and financing activities.
Difference from profit: Profit represents business performance on paper, while cash flow reflects the actual amount of money a business has and can use immediately.
Distinguishing Cash Flow from Revenue and Profit
To make it easier to understand, the table below summarizes the differences between the concepts:
| Criteria | Cash Flow | Revenue | Profit |
| Nature | Cash received or paid | Recorded sales and service value | The difference between revenue and expenses |
| Time of recording | When money actually comes in/goes out | When the transaction occurs (accrual accounting) | After accounting for all costs and taxes |
| Measurement | Actual solvency and liquidity | Business scale | Business profitability |
| For example | Customers pay immediately or debt is not paid yet | Issue sales invoice | Revenue minus costs of raw materials, wages, etc. |
Concepts related to Cash Flow
- Cash Inflow: Amounts received from sales, services, loans or investments.
- Cash Outflow: Payments to suppliers, employee salaries, operating costs, tax…
- Net Cash Flow: The difference between cash inflow and outflow.
- Positive cash flow: Cash in is greater than cash out → increases liquidity.
- Negative cash flow: Cash out is greater than cash in → need to control spending or raise more capital.
What is the importance of Cash Flow to business?
Cash flow is considered the "blood vessel" of a business, determining:
- Short-term solvency: Ensuring salary payment, debt repayment, operating costs.
- Financial risk management: Limit the risk of insolvency despite accounting profits.
- Make strategic decisions: Identify opportunities for investment, business expansion, or financial restructuring.
Cash Flow Classification: Components of the Cash Flow Statement
Cash flow statement (Cash Flow Statement) is an important tool to help businesses track cash movements and assess profitability, liquidity, and overall financial health.
Cash flow classification helps businesses and investors clearly see the nature of cash flow, where it comes from and where it is used, instead of just relying on profit figures. In other words, understanding cash flow classification is grasping the financial "blood vessels" of the business, helping to manage effectively and predict risks early.
Operating Cash Flow (OCF)
This is the cash flow arising from main business activities of a business, including sales, provision of services, payment of operating expenses, taxes and payments related to regular business operations.
- Reflects the amount of cash generated from core business activities (sales, service provision).
- An important measure of a company's ability to generate cash without relying on external funding.
- Is the most important indicator to assess the ability to generate cash from core operations.
- Positive OCF cash flow → the business is generating cash from operating activities.
- Negative OCF cash flow → can warn of business performance or problems business cash flow management.
Investing Cash Flow (ICF)
- Cash flows arising from the purchase, sale, or investment in long-term assets such as buildings, machinery, real estate, or other long-term financial investments.
- Usually cash outflows when buying assets and cash inflows when selling assets or recovering investments.
- Helps managers evaluate the level of investment and profitability of long-term investments.
Cash Flow from Financing Activities (Financing Cash Flow – FCF)
Cash flow from capital raising or repayment activities, including borrowing, issuing shares, paying dividends or repaying principal.
- Record proceeds from borrowing, issuing shares and payments of dividends and debt repayments.
- Demonstrates the enterprise's strategy for raising and using capital.
- Helps investors and CFOs track how the business leveraging debt and equity to develop or maintain operations.
Net Cash Flow
Is the difference between total cash inflow and cash outflow during the period, cknow the business is increase or decrease the amount of cash Actual during the period is the basis for making liquidity decisions and managing reserve funds.
- Recipe: Cash flow = OCF + ICF + FCF
Free Cash Flow (FCF)
Is the amount remaining after a business has spent on capital expenditures (CAPEX) from operating cash flow
- FCF is an important indicator for business valuation and investment decisions.
- Positive free cash flow → the company has the ability to pay debt, pay dividends and reinvest.
- Negative free cash flow → the business may need to raise additional capital or cut spending.
Meaning:
- For CFO: Assess the ability to finance new operations without additional debt.
- For investors: A key indicator in business valuation, reflecting actual cash generation power.
Discounted Cash Flow (DCF)
Valuation method based on converting future cash flow values to the present, using discount rates.
- Popular in financial investments, M&A, and strategic decision making.
- Allows investors to estimate the intrinsic value of a business and compare it with the market price.
Effective Cash Flow Management Methods
Not only is it important to understand the nature of cash flow, but effective cash flow management is also extremely important. This is not just about "earning more than spending", but also about balancing the pace of revenue and spending, optimizing receivables and payables to maintain a positive, stable and sustainable cash flow.
So what is the solution to cash flow management?
Financial planning and Cash Flow Forecasting
This is the first step in cash flow management, helping businesses Estimate cash needs and anticipate future fluctuations.
Main steps:
- Cash Inflow Forecast: Estimate cash flow from sales, debt collection, financing sources.
- Cash Outflow Forecast: Including operating costs, salaries, debt payments, investments.
- Calculate Net Cash Flow: Compare cash inflows and outflows to determine surpluses or shortages.
- Take action: If a shortfall is forecast, it is necessary to prepare short-term loans, adjust costs or promote debt collection.
Cash flow planning and forecasting helps businesses be proactive in all situations, avoid the risk of sudden cash shortages and optimize capital efficiency.
Optimizing Cash Flow (Accounts Receivable Management – AR)
AR management helps businesses speed up debt collection, improve available cash flow and reduce credit risk from customers.
Optimization strategies:
- Payment policy & incentives: Encourage customers to pay early with discounts; establish clear payment terms.
- Tracking & debt reminders: Use automatic system to remind customers, reduce bad debt risk.
- DSO (Days Sales Outstanding) Index: Reflects the average time (number of days) it takes for a business to collect money after generating revenue.
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- Low DSO: Fast debt collection, stable cash flow.
- High DSO: Risk of capital stagnation and liquidity shortage.
Optimize cash flow to help Reduce capital costs, improve operating efficiency and improve overall financial performance.
Optimizing Cash Flow Outflow (Accounts Payable Management – AP)
AP management helps businesses maximize payment terms, control costs and maintain good relationships with suppliers.
Strategies:
- Take advantage of payment terms: Use the full credit period that the supplier allows, both to maintain reputation and to maintain cash for other activities.
- Negotiation with suppliers: Negotiate longer terms or discounts for early payment.
- Cost Control: Limit overspending, review unnecessary expenses.
Effective cash flow management helps businesses preserve capital, balance liquidity and improve profits.
The Role of Financial Automation in Cash Flow Management and Solutions from Bizzi.vn
Cash flow management is not just about planning or forecasting, it also requires use technology to automate financial processes, helping to reduce errors, speed up cash collection and disbursements, and improve capital efficiency.
With Bizzi.vn, financial automation is not only about saving time, but also a strategic tool to help businesses manage cash flow effectively, reduce risks and create a solid foundation for long-term growth. Bizzi is currently the leading financial automation solution in Vietnam, trusted and chosen by many large enterprises, typically:
- N KID – children's entertainment and retail center system.
- GS25 – Korean convenience store chain.
- Guardian – famous pharmaceutical and cosmetic retail brand.
- TIKI – top e-commerce platform in Vietnam.
….
The trust from major brands shows that Bizzi not only solves cash flow problems effectively but also meets strict requirements on scale, accuracy and system integration capabilities.
Accounts Payable Automation (AP Automation)
Bizzi.vn applies AI and RPA to process input invoices quickly, eliminating manual errors. In particular, the 3-way matching feature between invoices - orders - warehouse receipts helps detect discrepancies in a timely manner, minimizing the risk of fraud and incorrect payments.
- Automated invoice processing using AI/RPA: Bizzi.vn applies artificial intelligence (AI) and robotic process automation (RPA) to automatically collect, check and classify input invoices. This helps to minimize manual errors and save processing time.
- 3-way matching: The system automatically compares invoices with purchase orders and delivery notes, helping to detect discrepancies and prevent incorrect payments.
- Cash outflow management: AP automation helps businesses control costs, take advantage of payment terms and maintain good relationships with suppliers, thereby optimizing cash flow.
Accounts Receivable Management Automation (AR Automation)
A common problem in cash flow management is slow debt collection, causing capital to stagnate. Bizzi.vn provides an automatic debt reminder system via email/SMS, and monitors the debt aging index (Aging Report). This not only improves the speed of debt collection but also directly increases the stability of cash flow.
- Automatic debt reminder: Bizzi.vn provides automatic debt reminder solutions via multiple channels such as email and SMS, helping to reduce debt collection time and improve cash flow.
- Tracking the debt aging index (Aging Report): The system automatically updates and classifies debts by age, helping CFOs easily track and manage debts.
- Improve cash flow: AR automation helps businesses speed up debt collection, reduce credit risk, and improve solvency.
Budgeting and Spending Control
With Bizzi Expense, businesses can monitor spending in real time and set up automated approval processes for each expense. This keeps budget overruns and unplanned spending under control, helping to maintain a healthy cash flow.
- Real-time spending monitoring: Bizzi.vn provides real-time expense tracking tools, helping businesses control budgets and prevent overspending.
- Automated approval process: The system automates the spending approval process, ensuring compliance with financial policies and improving administrative efficiency.
- Cost optimization: Controlling spending and budgeting helps businesses optimize costs, increase profits and improve cash flow.
Seamless integration with ERP systems
Bizzi.vn's outstanding strength is its ability to Integrates with leading ERP systems such as SAP, Oracle, Microsoft Dynamics. All debt, expense and invoice data is synchronized, creating a unified financial ecosystem, helping CFOs and administrators make decisions based on accurate, real-time data.
For Bizzi.vn, financial automation is not only a time saver, but also a strategic tool to help businesses manage cash flow effectively, reduce risks and create a solid foundation for long-term growth.
FAQ What is Cash Flow?
Below are answers to some questions related to what is cash flow, comparison and how to optimize cash flow in a business.
Is negative cash flow dangerous?
Negative cash flow is not always a bad thing. For example, when a company invests heavily in expansion, marketing, or M&A, the cash flow may be negative in the short term but bring long-term benefits. However, if the negative cash flow comes from core business activities (no revenue from sales), it is a sign of high liquidity risk.
How is cash flow different from profit?
- Profit is an “accounting figure” that reflects the results of business operations (which may include uncollected revenue or unpaid expenses).
- Cash flow reflects the actual money going in and out of the business.
A business can have positive profits but negative cash flow (due to outstanding debt, large inventories), or vice versa.
How to improve business cash flow?
Efficient AR/AP management, cost optimization and financial automation applications.
- Manage AR (accounts receivable): Shorten collection time, improve DSO.
- Manage AP (accounts payable): Make the most of your payment terms without compromising your reputation.
- Inventory control, optimizing working capital turnover.
- Application financial automation (like Bizzi.vn) to reduce errors, speed up invoice processing and cash flow.
Does cash flow affect business valuation?
Yes. Most current valuation methods (e.g. DCF – Discounted Cash Flow) based on the ability to generate future cash flows. Investors and CFOs are often interested in Free Cash Flow (FCF), because this is the real capital available to pay dividends, reinvest or repay debt.
Conclude
Cash flow is the ultimate indicator that determines the ability of a business to survive and develop sustainably. A business strategy can fail simply because of ineffective cash flow management, while a business with healthy cash flow will always have an advantage in expanding, investing and responding to risks. Hopefully, the above article has provided the necessary information to help managers better understand the nature of cash flow.
In the digital age, effective cash flow management is not just about planning, but also requires the application of financial automation technology to accelerate, reduce errors and control comprehensively. This is also the reason why many large enterprises such as N KID, GS25, Guardian, TIKI have chosen Bizzi.vn - a solution to help optimize the process of Managing Receivables, Payables and Expenses, ensuring transparent, safe and sustainable cash flow operations.
Don't let cash flow risks hold your business back. Apply Bizzi.vn today to turn cash flow into a long-term competitive advantage. Sign up for a free consultation and trial of Bizzi's solutions here: https://bizzi.vn/dang-ky-dung-thu/