What Is Inbound Cash Flow?
Inbound cash flow is any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow can include sales revenue generated through business operations, refunds received from suppliers, financing transactions and amounts awarded as a result of legal proceedings. Lack of inbound cash flow can stunt growth, force a company to use costly lines of credit and even cause operational issues.
Understanding Inbound Cash Flow
Inbound cash flow can also be positive cash additions to a person's bank account. When a salesperson is paid by their employer for their labor, this an inbound cash flow for the employee. Conversely, this salary or commission to the employee represents an outbound cash flow for the employer. If a salesperson successfully completes a sale to a customer, this represents an inbound cash flow for the company.
As well, consider a company participating in a round of debt financing. A company that issues bonds is borrowing money, which must be repaid over time (with interest). However, at the time of the bond issuance, the company receives the cash, which makes it an inbound cash flow for the company. When the bond is later repaid, this is an outbound cash flow for the company. Outbound cash flows can include cash paid to suppliers, wages given to employees and taxes paid on income. Outbound cash flows, like inbound ones, can be characterized informally — money out and money in — but they can also be captured on a cash flow statement in accordance with standard accounting procedure.
An analyst will compare outbound cash flows with inbound ones over a period of time to evaluate a company's financial condition. Inbound cash flows that are consistently greater than outbound cash flows are ideal. There are times when a significant outbound flow occurs — construction of a new production plant or for an acquisition — but as long as the funds are applied wisely, the future inflows from such investments should generate acceptable returns for the company. If not, a company may not succeed. In fact, one of the biggest reasons companies file for bankruptcy is insufficient revenue inflows. Without inbound cash flow, no business will be able to prosper. In the technology sector, for example, companies may attract funding and interested investors due to their products' potential sales and profits. However, if a company can not transform the potential into reality, then the company may not survive.