A cash flow system is a management system that allows an administrator or manager to closely monitor cash flow, and ensure it is adequate. While businesses make money by buying and selling products or services, the cash flow is often very important. Customers may only be required to pay every so often, but bills and payroll may be due to before those payments are received. This is where a cash flow system becomes crucially important.

For small businesses that have no employees, or one or two employees, managing a cash flow system may be an easy thing. If and when the company starts to grow, it can quickly become more difficult. Employees depend on that money. If it is not there because there is not enough for payroll, then that will not only affect morale, but could lead to high turnover. Bills that cannot be paid could stop suppliers from delivering. Even if the business model is solid, if cash flow is a problem, the company could be in serious trouble.

A good cash flow system will look at all of these issues, paying particular attention to accounts receivable and accounts payable. Accounts receivable is money owed to the business. Accounts payable is money the business owes someone else, such as a supplier or utility. Payroll may also fall under accounts receivable, but usually this portion of the business is devoted to outside accounts. There may be a way to manage these accounts, such as restructuring billing cycles, so that the cash flow system receives more of a steady inflow and outflow.

Money management of cash on hand is another important part of a cash flow system. Saving that money for use as a temporary measure to pay bills until it can be replenished is a common strategy. This is often called a reserve fund. It is used until the cash flow can replenish it, acting much like a reservoir in a water system. The money may be kept in an interest-bearing account to create even a little residual income for the company. It is important to remember the reserve fund is not an emergency account, but a routine part of the cash flow system.

Those having trouble coming up with an adequate cash flow system on their own have a couple of different options. A cash flow analysis done by a business financial consultant could be done to help set up a system tailor-made for a business. There is also cash flow software that can handle some of these tasks, though this often requires the user to have some skills with cash flow.