Forecasting and Managing Cash Flows Key Terms

Cash flow

the sum of cash payments to a business less the sum of cash payments from the business

Insolvent

when a business cannot meet its short-term debts

Cash flow forecast

an estimate of the future cash inflows and outflows of a business

Cash inflow

cash payments into a business

Cash outflow

cash payments out of a business

Net cash flow

estimated difference between cash inflows and cash outflows for the period

Opening cash balance

cash held by the business at the start of the month

Closing cash balance

cash held by the business at the end of the month, which becomes next month’s opening balance

Credit control

monitoring of debts to ensure that credit periods are not exceeded

Bad debt

unpaid customers’ bills that are now very unlikely to ever be paid

Overtrading

expanding a business rapidly without obtaining all of the necessary finance, resulting in a cash flow shortage