To manage cash flow, a company needs to delay and reduce outflows of cash and speed up inflows of cash to the business.

Increase inflows:

• Give customers a shorter credit period.
• Using a factoring company to chase up unpaid bills.
• General good credit management.

Delay outflows:

• Ask suppliers for a longer credit period.
• Buy in bulk to take advantages of economies of scale.
• Lease equipment instead of buying it.
• JIT (just in time) means avoiding keeping excess stock so less space is used up.
• Also, a company may reduce outflows by cutting costs or find cash to cover shortages such as a bank loan.

A firm may have excess cash but be unprofitable e.g. if they have just sold off a lot of old stock cheaply - made money from the sales but little profit.

A firm may be profitable but lacking cash e.g. if the amount they are spending is more than what they are receiving from sales.