# 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:

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](https://creditcorpgroup.co.uk/guides/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](https://creditcorpgroup.co.uk/calculators/working-capital-gap/),
 and check how many weeks of cover your balance gives you with the
 [cashflow runway calculator](https://creditcorpgroup.co.uk/calculators/cashflow-runway/).

## Managing the gap before funding it

Most cashflow pressure can be eased without borrowing at all. Tighten the timing before you reach for finance.

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](https://creditcorpgroup.co.uk/products/) 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](https://creditcorpgroup.co.uk/products/) 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](https://creditcorpgroup.co.uk/guides/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](https://creditcorpgroup.co.uk/guides/avoiding-over-borrowing/).
 This lending sits outside the FCA consumer-credit regime, under
 Article 60B of the FSMA RAO 2001 — see
 [lending and regulation](https://creditcorpgroup.co.uk/lending-and-regulation/) for
 what that means in practice.

## Where to go next

[Size your working-capital gap →](https://creditcorpgroup.co.uk/calculators/working-capital-gap/)