Certified Supply Chain Professional (CSCP) Practice Exam

Which of the following best describes reverse cash flow?

1. Cash inflow from sales

2. Credits and discounts issued

3. Payments from suppliers

4. Investment income returns

The correct answer is: Credits and discounts issued

Reverse cash flow typically refers to the cash effects that involve the reduction of cash inflows due to certain financial activities, particularly in the context of accounts payable and receivable. In this regard, credits and discounts issued to customers or other stakeholders represent a reduction in cash that the business would otherwise receive from sales. This adjustment to cash flow reflects a situation where, instead of receiving full payment, the company provides incentives such as discounts or credits, decreasing the total cash inflow. Understanding this concept is crucial for managing working capital effectively; it highlights the impact of pricing and promotional strategies on the overall cash position of a business. By analyzing reverse cash flow, businesses can evaluate the effectiveness of their pricing tactics and customer relations strategies, ultimately leading to improved financial management.