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Understanding business cashflow.
Cashflow is the money actually moving through a company's bank account — in from customers, out to suppliers, staff and the taxman. It is not the same as profit, and the difference is what catches healthy companies out. This guide sets out cash in versus cash out, why profit is not cash, works a simple illustrative example, and shows where short company finance fits.
Cash in versus cash out
Cashflow is the timing of money moving through the bank account, not the value of the business it represents.
Every company runs on two streams. Cash comes in when a customer actually pays — not when the sale is agreed, not when the invoice is raised, but when the money lands. Cash goes out when the company pays for the things it needs to trade: stock, wages, rent, fuel, software, VAT and the rest. When more comes in than goes out over a period, the balance rises. When more goes out than comes in, it falls. That, in plain terms, is cashflow.
The trap is that these two streams rarely move in step. A company usually has to pay for the work before it gets paid for the work. Stock is bought weeks before it sells. Wages are due at the end of the month whether or not the customer has paid. The order in which money leaves and returns matters far more to day-to-day survival than the totals over a year. A business can be heading for an excellent year and still be unable to pay this Friday's wages.
Why profit is not cash
Profit is recorded when you earn it. Cash exists only once you have been paid. The two run on different clocks.
Profit is an accounting measure. It records a sale the moment it is made and a cost the moment it is incurred, regardless of whether any money has changed hands. Cash is the literal balance in the account. The two answer different questions: profit asks "is the business worth doing?", cash asks "can the business pay its bills this week?". A company needs a yes to both, and a yes to one does not guarantee a yes to the other.
Several everyday things drive a wedge between the two:
- Customer terms. Sell on 30-day terms and the profit is booked today, but the cash arrives a month later — or longer, if the customer pays late.
- Stock. Money spent buying inventory leaves the account at once, yet shows up as a cost only as the stock sells. Until then it is cash off the table.
- Capital spending. Buying equipment is a large cash outflow now, spread across the profit account as depreciation over several years.
- Tax. VAT and corporation tax bunch up into single large payments on fixed dates, with no regard for how the month's trading is going.
None of these is a sign of a badly run company. They are the normal mechanics of trading. But they explain why a profitable business can run short of cash, and why watching the profit-and-loss account alone will not tell a director when money is about to run tight. The cash conversion cycle guide puts a number of days on exactly this gap.
A simple worked example
An illustrative trading company — figures invented to show the mechanics, not a real customer.
Take an incorporated supplier that wins a single order. It buys £2,000 of stock up front, pays £600 in wages while fulfilling the work, then invoices the customer £4,000 on 30-day terms. On paper the job is plainly profitable. Follow the cash through the month, though, and a different picture appears.
| Point in the month | Cash in | Cash out | Running balance |
|---|---|---|---|
| Start — opening balance | — | — | £900 |
| Buy stock for the order | — | £2,000 | −£1,100 |
| Pay wages on the job | — | £600 | −£1,700 |
| Invoice raised (£4,000, 30-day terms) | — | — | −£1,700 |
| Customer pays, 30 days later | £4,000 | — | £2,300 |
The job earns a healthy £1,400 of profit (£4,000 less £2,600 of cost), and the company ends the month £1,400 better off than it started. Yet for most of that month the account is roughly £1,700 in the red. The profit was never in doubt; the cash was missing for the four weeks between paying out and being paid. A company without an £1,700 buffer cannot take that order on those terms — not because it is unprofitable, but because it cannot fund the gap in the middle.
That gap is a defined, short, self-clearing shortfall: a known amount, covering a known number of days, with money you can see arriving at the end. You can size the version of it your own company carries with the working-capital gap calculator, and check how many weeks of cover your balance gives you with the cashflow runway calculator.
Managing the gap before funding it
Most cashflow pressure can be eased without borrowing at all. Tighten the timing before you reach for finance.
- Forecast it. A rolling 13-week cash forecast turns surprises into known dates. You cannot manage what you do not see coming.
- Get paid sooner. Invoice the day the work is done, make payment easy, shorten terms where you can, and chase early. Persistent late payers widen every gap — the late-payment interest calculator shows what that delay is worth.
- Pay out later, within terms. Agreed supplier terms let your suppliers fund part of the cycle for you. Stretching beyond what was agreed, though, damages the trade-credit record covered in building business creditworthiness.
- Hold less stock. Cash sitting on a shelf is cash not in the bank. Order more often and clear slow lines.
- Keep a buffer. A cash reserve absorbs the ordinary timing mismatches without any borrowing at all.
Operational tightening should always come first, and it costs nothing. But there is a floor: a trading business needs some stock and offers some terms, so the gap rarely closes to zero. Past that floor, a genuine timing shortfall can remain even after everything has been done well.
Where short company finance fits
For a defined, short timing gap with a clear repayment date, a small fixed-term facility is shaped to fit.
When the shortfall is the timing gap in the worked example — a known sum, covering a known number of days, with money arriving at the end to clear it — the shape of finance that matches is short and fixed-term. You borrow the amount, cover the gap, and repay when the receivable lands. That is what the Creditcorp Business Bridging Loan is built for: £50–£500 over 14–84 days, priced at 0.25% per day on the outstanding principal, with a one-off £5 establishment fee and the total cost capped at 100% of the principal. The borrower is the company, never the director, and no personal guarantee is taken.
A bridge suits a one-off, time-limited gap. If the cashflow pressure is instead a recurring rise and fall, a revolving facility such as Creditcorp Flex may fit better; if it is a single supplier bill you want to spread, Creditcorp Slice splits a £50–£2,000 bill into three or four instalments over up to eight weeks for a 6% flat fee. Matching the shape of the finance to the shape of the need is the whole subject of choosing the right business finance.
What none of these is for is a permanent, structural cash deficit — where the company spends more than it earns, month after month, with no event that closes the gap. That is a profitability problem, and borrowing only postpones it. The honest test before taking any short finance is in avoiding over-borrowing. This lending sits outside the FCA consumer-credit regime, under Article 60B of the FSMA RAO 2001 — see lending and regulation for what that means in practice.
Where to go next
- Working-capital gap calculator — size the shortfall for your own company.
- The cash conversion cycle — put a number of days on the gap between paying out and being paid.
- Choosing the right business finance — match the shape of finance to the need.
- The Business Bridging Loan, Creditcorp Flex and Creditcorp Slice, and the glossary.