Cash Flow
Definition
Cash flow is the movement of money into and out of your freelance business over a specific period. Positive cash flow means more money came in than went out. Negative cash flow means the opposite.
Detailed Explanation
Cash flow is not the same as profit. You can be profitable on paper (invoices sent) but have negative cash flow (invoices unpaid) — this is very common for freelancers. Key cash flow metrics for freelancers: monthly net cash flow (income received minus expenses paid), average time to get paid (invoice date to payment received date), largest single expense month (for planning), and cash reserve (how many months you can operate with zero new income). Late-paying clients are the #1 cause of cash flow problems for freelancers. Automated invoicing and payment reminders directly improve cash flow by reducing the time between completing work and receiving payment.
Freelancer Example
A freelance consultant sends $8,000 in invoices in January but only receives $3,000 in payments (the other clients are Net 30). Their January expenses are $4,000. Despite being 'profitable' on paper ($8,000 earned), they have negative cash flow of -$1,000 for the month. This gap is why cash flow tracking matters.