The ultimate guide to cash flow management

Cash flow management is the process of tracking the money your business receives and measuring it against what you spend, giving you an accurate look at how much cash you have. When cash flow management is done properly, it ensures your business has the liquidity to meet immediate and long-term obligations, invest in opportunities, and maintain the overall financial health of your business.

Cash flow involves two primary movements, inflows and outflows. Cash inflows are the money coming into your business through sales, investments, loans, and other revenue sources. Cash outflows represent money leaving your business through expenses, loan repayments, inventory purchases, and other expenditures. The delicate balance between these two determines your cash position at any given time. When inflows exceed outflows, you have positive cash flow — the financial breathing room that allows your business to thrive. When outflows exceed inflows, you face negative cash flow, which can quickly create a financial crisis even for profitable businesses.

Cash flow categories

Cash flow can be broken down into three categories: Operating, investing, and financing.

1. Operating cash flow

Operating cash flow reflects the money generated from your core business operations, or the day-to-day activities of selling goods and services minus the costs of running the business. This category determines whether your primary business model is financially sustainable. It includes revenue from sales, payments to suppliers, employee wages, rent, utilities, and other regular operational expenses. Strong operating cash flow indicates your business can generate sufficient funds from its main activities to maintain and grow operations without relying on external financing.

2. Investing cash flow

Investing cash flow tracks money spent on or received from long-term assets, such as equipment purchases, property investments, or the sale of major assets. This shows how you're investing in your business's future capacity. It captures capital expenditures, acquisitions of other businesses, purchases of investment securities, and proceeds from selling these assets. Negative investing cash flow often signals growth as you invest in resources that will generate future income, while positive investing cash flow might indicate divesting assets to raise capital.

3. Financing cash flow

Financing cash flow captures transactions with owners and creditors, including taking on new loans, repaying debt, issuing stock, or paying dividends. This type of cash flow illustrates how you're structuring your business's capital foundation. It includes proceeds from issuing equity or debt, loan repayments, dividend payments, and stock repurchases. Financing cash flow helps you understand how your business funds its operations and growth beyond what it generates internally, as well as how it returns value to investors and lenders.

Businesses often fail due to poor cash flow management, underscoring the critical importance of monitoring your money movement. When cash flow falters, the consequences cascade throughout your entire operation, often beginning subtly before escalating into significant problems. Without sufficient cash reserves, you might struggle to pay vendors on time, potentially damaging supplier relationships and disrupting your supply chain. A study by Intuit from January 2025 found that 40% of small businesses had cash flow problems.

Poor cash flow management creates ripple effects that extend well past immediate operational challenges. When cash is tight, you can't pursue advantageous bulk purchasing discounts, invest in productivity-enhancing technology, or capitalize on market opportunities that require quick action. These missed chances represent invisible losses that don't appear on any balance sheet but significantly impact your competitive position over time.

Effective cash flow management creates a foundation for sustainable growth. With a clear understanding of your cash position, you can make confident decisions about expansion, hiring, or equipment purchases. You gain negotiating power with suppliers and can potentially secure more favorable terms. According to a JPMorgan Chase Institute study, businesses with effective cash flow management have survival rates three times higher than those without such practices. Healthy cash reserves also provide essential breathing room during seasonal fluctuations or economic downturns, allowing your business to weather storms while competitors might falter, potentially enabling you to gain market share during recovery periods.

While much of our discussion has focused on avoiding pitfalls and growing your business, effective cash flow management delivers additional advantages that might not be immediately obvious. Here are four significant benefits that extend beyond basic financial stability.

1. Stronger negotiating position with suppliers

Businesses with healthy cash flow can negotiate from a position of strength. When you have cash available, you can offer upfront or early payments in exchange for discounts, favorable terms, or priority service. Many suppliers will reduce prices by 2-5% for immediate payment rather than waiting 30-60 days. Additionally, being known as a prompt payer makes you a preferred customer, often resulting in priority treatment during supply shortages or when rush orders are needed.

2. Enhanced crisis resilience

While economic downturns affect all businesses, those with strong cash flow management fare significantly better. The 2020 global pandemic provided a stark illustration of this principle. Businesses with solid cash reserves had the breathing room to pivot their operations, retain key staff, and in some cases, acquire struggling competitors at favorable valuations. This resilience extends to industry-specific disruptions as well, such as regulatory changes or supply chain interruptions.

3. Lower financing costs

Lenders and investors evaluate risk partly based on cash flow patterns. Businesses demonstrating consistent, positive cash flow typically receive more favorable interest rates and terms when they do need external financing. This creates a virtuous cycle where your effective cash management reduces borrowing costs, which in turn can improve cash flow in the future.

4. Increased decision-making agility

Perhaps the most underrated benefit of strong cash flow management is the strategic agility it provides. When market conditions change or opportunities arise, businesses with available cash can make decisions quickly rather than navigating lengthy approval processes for financing. This speed advantage allows you to capitalize on limited-time opportunities like equipment liquidations, competitor weaknesses, or sudden market gaps. Many successful businesses attribute their most profitable moves to having been able to act decisively when others could not due to cash constraints.

These benefits create a competitive advantage that compounds over time. While competitors struggle with the constant pressure of tight cash flow, your business can focus energy on innovation, customer service, and strategic planning. This difference in focus often separates industry leaders from the rest of the pack, especially during challenging economic periods.

Below we break down five proven ways you can better manage, improve, and optimize your cash flow as you grow.

1. Forecasting cash flows

The first technique for helping to manage cash flow is forecasting. This allows your business to anticipate future financial needs and flag any potential shortfalls. To project your cash flow, you can look at:

• Historical data analysis: This involves looking at your past cash flow data to find patterns, trends, and seasonal fluctuations. By analyzing historical statements, you can make informed predictions about how your future cash in and out may net out.
• Trend analysis: This involves looking at the overall market for patterns and trends. This method considers factors like sales growth, market trends, and economic indicators. It helps you anticipate shifts in revenue and expenses.
• Cash flow modeling software: You can also automate your analysis using software that runs scenario analysis, sensitivity analysis, and customizable reporting. This allows you to generate accurate and detailed cash flow forecasts based on the market.

Long story short — accurate cash flow forecasting allows you to anticipate trends and plan for them. That means you can plan to ensure you always have the funds you need to meet operational expenses, investment requirements, and debt obligations.

2. Cash flow audits

Regularly monitoring your cash flow and running reports that track your cash flows both in and out, helps identify discrepancies between your forecasts and actuals. Closely tracking your cash on a weekly, monthly, or quarterly basis allows you to find any deviations from expected trends and take action to correct the problems before they snowball.

Utilizing cash management software and accounting automation can provide real-time tracking so you have always up-to-date information to report on. This helps you make proactive decisions, timely adjustments to forecasts, and strengthen your overall liquidity management — all which can improve your overall financial performance and reduce any risks of cash flow shortages.

3. Automate bill payments

Another technique to simplify cash management is automated bill payments. This streamlines the process of settling any outstanding bills so that you pay on time, every time. AP automation software for example, reduces the processing time of payments and minimizes the potential for manual entry errors that might give you inconsistent data.

You also save time drafting bills or manually enter invoice line items for vendor payments, which allows your team to focus on more valuable work. Plus, by automating your outgoing bill payments, you reduce the risk of late fees, penalties, and disruptions from unpaid invoices.

4. Optimize payment schedules

A fourth technique you can use to manage your cash flow is optimizing your payment schedules. This means strategically timing vendor payments to maximize cash flow flexibility. There are various ways to do this, like implementing effective vendor negotiation strategies to secure extended payment terms with suppliers. Strong vendor negotiation not only helps with payment timing but can also lead to volume discounts and preferential pricing. This allows you to preserve cash for other operational needs or investment opportunities.

Also, taking advantage of early payment discounts offered by suppliers means more cost savings. By optimizing your payment schedules, your business can add an extra layer of flexibility with every dollar in and out.

5. Strengthen collection processes

Finally, strengthening your collection processes means you paid on time more often. Automating your invoice processing, for example, helps streamline payments and can automate follow ups for overdue payments. And once the payment is received, it can be instantly tracked for a more accurate view of your cash on hand, versus manually recording it in a spreadsheet.

By promptly addressing outstanding invoices and maintaining clear communication with customers, you not only accelerate your cash inflows, but you reduce the risk of bad debt, and improve overall financial stability.

We’ve taken a look at what cash flow is and strategies on how to improve your management of it, but it’s also important to look at possible challenges you might face.

Here are a few common challenges to be aware of:

Late payments and overdue invoices

As mentioned above, you are often reliant on others to settle their invoices within an agreed-upon timeframe. Late payments occur when they fail to make those times, leading to cash flow disruptions and liquidity issues for your business. Overdue invoices can also strain relationships with customers and suppliers, and hurt your forecasting.

How to solve this challenge

Implement automated invoicing with regular payment reminders to reduce manual follow-up work. Offer early payment incentives like a 2-3% discount for payments made within 10 days to motivate faster settlements. For larger projects or clients with spotty payment history, require upfront deposits or milestone payments to maintain steady cash flow. Consider digital payment options and subscription-based billing for recurring clients to eliminate payment delays entirely.

Unforeseen expenses and economic downturns

The truth is you can’t always predict the market. Unforeseen circumstances can arise that unexpectedly raise costs beyond your forecasted amounts. This includes things like equipment breakdowns or tariffs, which place additional stress on your cash reserves. Economic downturns and reduced consumer spending can also negatively impact your revenue.

How to solve this challenge

Build a cash reserve covering at least three to six months of operating expenses to insulate your business from unexpected costs. Diversify your revenue streams across multiple customer segments, product lines, or markets to reduce dependency on any single source of income. Negotiate flexible terms with suppliers that allow you to scale costs up or down as business conditions change. Implement regular maintenance schedules for essential equipment to prevent costly emergency repairs, and review your insurance coverage annually to ensure adequate protection.

Poor budgeting and forecasting

As covered above, not forecasting potential issues and properly budgeting for those dips can impact your cash flow. It means you might spend too much cash before a seasonal sales dip, for example. Or worse, you can underestimate expenses or overestimate revenue, which leads to overspending.

How to solve this challenge

Analyze several years of historical data to identify seasonal patterns specific to your business and industry, which helps prevent being caught off guard by predictable fluctuations. Use cash flow management tools that automatically flag variances between projected and actual figures, allowing for quick adjustments before small issues become major problems. Create multiple scenarios (best-case, worst-case, and most-likely) for each quarter to prepare contingency plans for different market conditions. Review budgets monthly rather than quarterly, making small course corrections regularly instead of major adjustments when it might be too late.

Bad collection processes

Bad collection processes just come down to not getting paid when you’re supposed to. You’ll get paid on time by having the right tools and processes in place. Not having the right processes in place can mean delayed payments and lack of cash flow.

How to solve this challenge

Streamline your collection process with tools that automate invoicing, payment reminders, and receipt confirmation to maintain consistent follow-up without consuming staff time. Offer multiple payment methods including credit cards, ACH transfers, and digital wallets to remove any friction from the payment process. Create a standardized follow-up sequence triggered at specific intervals (pre-due date reminder, day after due date, one week late) to maintain steady pressure on outstanding accounts. Regularly review aging reports to identify problematic accounts early, allowing you to address payment issues before they significantly impact your cash flow.

Lack of payment terms

Not setting our clear payment terms with customers can make collecting payment more of a headache than it needs to be. It can lead to confusion and disputes over payment amounts and timelines, which disrupts your bottom line.

How to solve this challenge

Develop clear, specific payment terms and include them prominently in all contracts, proposals, and invoices to eliminate confusion from the start. Discuss payment expectations verbally during the sales process and have clients explicitly acknowledge these terms before beginning work. Customize your approach based on client size and history, using stricter terms for new relationships until a steady payment track record is established. Include both consequences for late payments and incentives for timely payments to motivate clients to prioritize your invoices.

All of these are easy to navigate, but important to keep in mind. With the proper processes and tools in place, you can avoid a lot of these issues by automating invoices and tracking all of your cash flow in real time.

There are a lot of moving pieces when it comes to managing your cash flow. But what if there was an easier way to manage it all? That’s where accounts payable automation software can help — by streamlining bill payments and improving your processes.

Traditional AP processes are often manual and time-consuming, leading to accounting errors and inefficiencies. Automating your AP process with Brex can offer several benefits:

• Increased efficiency: Eliminate unexpected invoices and charges by pre-approving procurement budgets with embedded policies, and customized approval flows. Brex will automatically enforce it all across purchase card transactions and invoice payments.
• Faster payments: Set up one-time or recurring domestic and international payments in 40+ currencies via ACH, wire, or card.
• Improved accuracy: Capture invoices, draft payments, and generate receipts and memos all without human data entry for more accuracy and expense compliance across all spend.
• Close the books faster: Brex automatically syncs every transaction with your ERP fields and GL codes — and you can view all your spend in real time.
• Enhanced controls: Set approval workflows and spending limits to ensure greater control over your finances.

You’re now an expert on what cash flow is, how to manage it, and how platforms like Brex can help automate every step — now let’s look at a real example of how it all comes together.

Agency struggling with late payments

Picture a small creative agency that is struggling with late payments from clients. They decide to implement Brex, and its invoice automation solution to streamline their whole accounts payable process. By using Brex, the agency can reduce their manual work when drafting and sending invoices. Plus, they can automate payment reminders and follow-ups for overdue payments.

And, with a proper, automated schedule put in place, not only is the client receiving notice for payment more often, but they can actually set up and save their payment info for future invoices. This means less late payments, better client relationships, and improved cash flow for the agency. It also means more financial stability, and the ability for everyone to focus more on growth initiatives, like winning new business, rather than chasing existing customers for outstanding payments. Smart, right?

Startup spending unnecessary time on cash flow audits

Imagine there’s a startup currently working to develop its products and secure additional funding. The founder is focused on helping the business grow, but as it has grown, its expenses have too. Since the startup is still in its early stages, there is no finance team to audit cash flow — so the founder is spending time determining where money is going rather than growing the business.

With Brex, this founder can fully automate cash flow management and get real-time audits of how cash is being spent. This can save the team—and the founder—time on cash flow audits and helps prevent any human-errors thanks to Brex’s fully-automated cash flow management software.

Seasonality impacting the bottom line

Let’s say there’s a business that has been in operation through several seasonal fluctuations. The finance team knows to anticipate an increase in sales throughout the summer, but as the business has continued to grow, they’ve struggled to accurately forecast both the cash inflows and outflows that coincide with that increase.

With a spend management platform like Brex, the finance team can get accurate cash flow forecasts, allowing them to provide accurate cash flow projections with the rest of the company. In turn, this allows the business to accurately prepare for an increase to sales while controlling overall spend.

Strategic cash flow management is much more than simply maintaining positive cash balances. When executed thoughtfully, it becomes a powerful growth engine that can propel your business forward while maintaining financial stability. Businesses that master cash flow management can identify opportunities and capitalize on them at the right moment without overextending their resources.

Effective cash flow strategies create a virtuous cycle where surplus cash is strategically reinvested to generate even greater returns. This might involve expanding your product line, entering new markets, or upgrading technology to improve efficiency. The key is making these investments without disrupting your operational cash flow or creating liquidity risks.

Expand inventory and capacity to meet demand

Many businesses use healthy cash reserves to purchase inventory in bulk, securing volume discounts that improve profit margins. Food manufacturers often follow this approach, using positive cash flow to gradually expand their production facilities, which allows them to meet growing demand without taking on excessive debt.

Buy new technology to reduce long-term costs

Companies with strong cash flow positions can invest in technology that reduces operational costs long term. A small accounting firm might use cash reserves to implement practice management software that automates billing and document processing, allowing staff to handle more clients without proportional cost increases.

Expand your market to find new customers

Healthy cash flow enables geographic expansion or entry into new customer segments. Retail businesses can use their strong operating cash flow to fund international expansion, testing new markets with minimal outside financing. This measured approach allows them to grow sustainably while maintaining their brand positioning.

Invest in research and development

Businesses with consistent positive cash flow can allocate resources to innovation. Technology companies often maintain substantial cash reserves partly to fund continuous research and development, ensuring they can create new product categories even during economic downturns when competitors might be cutting back.

Cash flow management is essential to your business’s success and sustainability. Businesses with strong cash flow management are more likely to survive and thrive compared to those without proper processes in place. The difference between success and failure often comes down to having the right tools and systems to monitor, forecast, and optimize your cash position.

For businesses looking to effectively manage cash, Brex stands out as a complete cash flow management solution thanks to its powerful corporate card, accounts payable automation, and seamless bill pay process. Traditional manual processes are time-consuming and prone to errors that can create serious financial issues. Brex eliminates these problems before they arise by giving you real-time visibility into your financial position and controlling spend before it happens.

With Brex, you'll eliminate unexpected invoices and charges through pre-approved procurement budgets with embedded policies. You can set up domestic and international payments in over 40 currencies via ACH, wire, or card while capturing invoices, drafting payments, and generating receipts without manual inputs. The platform automatically syncs every transaction with your ERP fields and GL codes, allowing you to close your books faster and view all your spend in real time. And with integrated business accounts, all of your business’s finances are viewable from a single interface.

Cash flow challenges that once seemed insurmountable—like the agency struggling with late payments, the startup wasting valuable time on manual audits, or the business battling seasonal fluctuations—become manageable with the right tools in place. Brex transforms these challenges into opportunities for greater efficiency and growth.

Brex's spend management platform gives your business the financial clarity and control needed to weather challenges, seize opportunities, and focus on growing your business. Knowing your cash flow is optimized allows you to shift your focus from financial survival to strategic growth and innovation. Sign up for Brex today to spend smarter and move faster.