9 common cash flow problems and how to solve them

common cash flow problems

Many financial experts recommend consumers put aside emergency funds to cover 3-6 months of expenses. The best way to avoid cash-flow problems that are seasonal is to plan your investments accordingly. Employee salaries and wages are a large part of your outgoing expenses. Therefore, poor employee management can lead to cash-flow problems — and possibly layoffs. Find out what the most common cash-flow challenges are so you can effectively manage or even avoid them. Let’s go through the pricing, features, reviews, and ways your business can use this tool on a daily basis to both make and receive payments.

Thanks to the widespread adoption of payment-processing technologies, slow invoice payments are becoming less and less of a cash-flow management problem. Indeed, credit cards, debit cards and other types of electronic fund transfers are much faster and more reliable. The best solution to cash flow problems is two-fold – understand what the potential risks are and implement technological tools to help you pre-empt them.

Create better business visibility

Anything that reduces operating costs without affecting the customer experience should be considered. To increase revenues, consider alternative profit-making opportunities, such as developing your products, targeting new markets, trying new pricing, or offering targeted discounts. While lower prices might reduce profit margins, if it’s combined with reduced expenses, you may be able to maintain a similar percentage. Cash flow management refers to organizing incoming and outgoing funds to ensure you always have the funds on hand to cover your expenses. It requires understanding upcoming bills, projections for future revenue, and any delays in your chosen payment methods.

One must understand and manage financial and other business risks properly, or else it will be difficult to make ends meet with limited debt-paying ability. However, an overstock is a sign of poor inventory common cash flow problems management and slow business growth. Based on a JP Morgan Chase study, SMEs manage to have an average of only 27 cash buffer days to cover their cash outflows if their cash inflows were to stop.

How to Prevent Cash Flow Problems

Think of how challenging it would be to run out of money before you even have a chance to open your doors. Whether it’s caused by declining sales or higher costs squeezing your profit margin, many businesses struggle with profitability problems that have knock-on effects on cash flow. When it comes to solving profit problems, you have two sides of the equation to improve – increasing revenue and reducing expenses. If you don’t manage your expectations, you can end up spending cash you haven’t yet earned on more stock or business growth and have none left to pay the bills. High debt leads to poor cash flow, leads to trimmed budgets, leads to unhappy customers and reduced income, which in turn leads to late repayment fees … the cycle has no end.

  • This could also extend to larger global events, with COVID being the prime example in the years 2020 and 2021, financial crises, political events, and other major issues.
  • According to Xero’s figures, almost half of all invoice payments made in 2021 to small businesses were paid late.
  • If you don’t, you could find yourself in situations where you don’t have any money to continue operating your business.
  • Here, 11 members from Forbes Business Council provide methods for solving cash flow issues.
  • If most of your sales are paid back slowly, then you’re simply scaling up the problem.