What does cash flow reliability depend on?

Cash flow reliability significantly hinges on the timing of cash inflows and outflows. This aspect is crucial because even if a company has strong sales volumes or high market demand, it does not guarantee that cash will flow in when needed to meet obligations. If cash inflows occur after key cash outflows, it can create liquidity issues, regardless of overall sales performance.

For example, a business might experience high sales but if the customers are given lengthy credit terms, cash may not arrive in time to cover immediate expenses such as payroll or supplier payments, leading to potential financial distress. Therefore, understanding the timing helps in forecasting liquidity needs and managing cash effectively.

Other factors, while important to overall business health, do not directly dictate the reliability of cash flow in the same way.