Starting a business is always tricky, especially when you are looking at the financial planning for it. When you start a business, you will come across the terms Cash Flow and Fund Flow and these terms must be understood well before embarking on your business journey. Both Cash Flow and Fund Flow are important aspects of an understanding of the finances of a business. They are useful in analyzing the position of cash and funds in the business. Both enable the users of the financial statements to project various plans & policies, liquidity, and solvency of the company.

What is Cash Flow?

Cash Flow refers to the payments coming in or going out of a business or project. These payments may include cash or cash equivalents. Cash equivalents are highly liquid investments such as marketable securities, commercial paper and short-term government bonds that can be converted into cash. A Cash Flow Statement contains opening and closing balances of cash and cash equivalents.

What is Fund Flow?

The Fund Flow deals with the working capital of a company. In a nutshell, Fund Flow determines whether the company has enough money to run its day to day operations. Fund Flow is used to determine the financial position of a company.

Key differences between Cash Flow and Fund Flow

The Cash Flow Statement is a financial statement that most investors look at to understand the position of the company while the Fund Flow Statement is not part of the financial statement. Cash Flow Statement shows the inflows and outflows of cash, but Fund Flow Statement shows the sources and application of funds. And while Cash Flow follows cash basis of accounting, Fund Flow follows accrual basis of accounting.

Furthermore, Fund Flow Statement analyses the changes in the working capital of a business between two accounting years. It clarifies the variability in the assets, liabilities and equity of the company. Fund Flow Statement is helpful for a long-term analysis of financial planning whereas Cash Flow Statement is useful for a short-term financial analysis of financial planning. Thus, it is used for capital budgeting as opposed to cash budgeting that can be done through monitoring Cash Flow.

Collateral free working capital for your business

Getting the working capital in place can be a huge struggle for any company. Luckily for you, LivFin, a non-banking financial company registered with the Reserve Bank of India (RBI) is authorized to grant small business loans, supply chain finance and working capital loans to small and medium businesses in India. The company understands the value of collateral free credit for small business owners and have optimized their products and services to be more convenient for their users.

About Supply Chain Finance

It is an emerging trend in India’s business lending space. With supply chain finance products like invoice discounting, a business can raise collateral-free finance without accruing debt. In invoice discounting, an invoice finance lender like LivFin helps suppliers of large business entities encash their unpaid invoices with support from the buyer.

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