How is cash flow different from profit?

Profit is an accounting measure of revenue minus expenses over a period, which can include amounts not yet actually received or paid. Cash flow tracks the real movement of money, showing whether the cash is actually in the bank when needed, regardless of what the income statement shows.

Why would a profitable business run out of cash?

This usually happens when there’s a timing mismatch, for example, a business has recorded revenue from an invoice that hasn’t been paid yet, while expenses like payroll or vendor payments are due immediately. This is a common risk for businesses with international clients, since cross-border payments can take longer to arrive than domestic ones.

How can I improve my business’s cash flow?

Common approaches include invoicing promptly and following up on overdue payments, negotiating more favorable payment terms with vendors, and building a cash reserve to cover timing gaps. For businesses with international payments specifically, understanding typical settlement times for both incoming and outgoing transfers helps in planning around the delay rather than being caught off guard by it.

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Cash flow: managing money movement and international timing

Key takeaways
- Cash flow is the movement of money in and out of accounts, distinct from profit shown on paper.
- It’s possible to be profitable on paper while running out of cash if payments and expenses aren’t timed well.
- Positive cash flow means more money is coming in than going out over a given period.
- International vendor payments and client payments can create timing gaps that affect short-term cash flow.
- Reviewing cash flow weekly or monthly, not just at tax time, helps in catching a squeeze before it becomes a crisis.

Cash flow is the movement of money in and out of accounts, and it’s possible to be profitable on paper while running out of cash. Here’s what to watch for, especially for a business that makes or receives international payments.

What is cash flow?

Cash flow is the actual movement of money into and out of a business over a given period, as opposed to profit, which is an accounting figure that can include revenue not yet collected or expenses not yet paid. A business can show a profit on its income statement while still experiencing a cash shortage if, for example, clients are slow to pay or a large expense comes due before revenue arrives.

How cash flow affects your business and financial health

Cash flow is often described in two directions:

Cash inflow, money coming into the business from sales, loans, or investment.
Cash outflow, money going out for expenses, payroll, vendor payments, and debt repayment.

Positive cash flow means more is coming in than going out over the period measured, which is generally a sign of a healthy, sustainable business, though even a profitable business can experience short-term negative cash flow due to timing.

Record-keeping tip

Track cash flow separately from the income statement, on a weekly or monthly basis for a business with tight margins or irregular payment timing. Include a note on any large international payment, sent or received, and its expected settlement date, since these often introduce more timing uncertainty than domestic transactions.

Cash flow and international business payments

For small business owners making regular international payments, managing cash flow⁠(opens in new window) requires accounting for timing that domestic-only businesses don’t have to think about as carefully. International payments often take longer to settle than domestic ones, and waiting on payment from an international client while also owing an international supplier can create a short-term cash crunch even if the business is fundamentally healthy.

Using accounting and invoicing tools⁠(opens in new window) that show upcoming international payments and their expected settlement dates alongside domestic ones gives a more complete, accurate cash flow picture, rather than being surprised when an international payment takes longer than a domestic one would have. Building a cash flow projection⁠(opens in new window) that accounts for this variability makes the picture even more reliable going forward.

Why profit and cash flow aren’t the same thing

A business can show a profit on paper while still running short on actual cash, if customers haven’t yet paid their invoices or if a large expense was paid upfront for goods not yet sold. Understanding this distinction, profit measures overall performance while cash flow measures actual money movement, helps explain why a seemingly profitable business can still struggle to pay its bills on time.

Improving cash flow without necessarily increasing sales

Beyond growing revenue, a business can improve cash flow by collecting customer payments faster, negotiating longer payment terms with its own suppliers, or reducing excess inventory tied up in unsold goods, three levers worth exploring before assuming increased sales is the only path to healthier cash flow.

Why a cash flow forecast should be updated weekly for a tight-margin business

A business operating on especially thin margins or facing seasonal uncertainty often benefits from a weekly, rather than monthly, cash flow forecast, since a shorter review cycle catches an emerging shortfall early enough to actually respond before it becomes a genuine crisis.

Why extending your own payment terms strategically can help

Negotiating slightly longer payment terms with suppliers, while maintaining shorter collection terms with customers, widens the gap between cash going out and cash coming in, a legitimate and common strategy for improving cash flow without changing actual sales or purchasing volume.

Common questions about cash flow

How is cash flow different from profit?

Profit is an accounting measure of revenue minus expenses over a period, which can include amounts not yet actually received or paid. Cash flow tracks the real movement of money, showing whether the cash is actually in the bank when needed, regardless of what the income statement shows.
Why would a profitable business run out of cash?

This usually happens when there’s a timing mismatch, for example, a business has recorded revenue from an invoice that hasn’t been paid yet, while expenses like payroll or vendor payments are due immediately. This is a common risk for businesses with international clients, since cross-border payments can take longer to arrive than domestic ones.
How can I improve my business’s cash flow?

Common approaches include invoicing promptly and following up on overdue payments, negotiating more favorable payment terms with vendors, and building a cash reserve to cover timing gaps. For businesses with international payments specifically, understanding typical settlement times for both incoming and outgoing transfers helps in planning around the delay rather than being caught off guard by it.

In Summary

Cash flow is about timing as much as it’s about totals, and a business can be fundamentally sound while still facing a short-term cash squeeze if money isn’t arriving and leaving in sync. For businesses with international payments, building in extra buffer time and tracking settlement dates carefully helps prevent a timing gap from becoming a real problem.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.