Common Cash Flow Problems + How to Solve Them

It helps the business to estimate how much cash it will have at the end of the period, and identify any potential cash flow gaps or surpluses. A cash flow budget should be based on realistic assumptions and updated regularly to reflect the actual performance and changes in the business environment. A cash flow budget can also help the business to set cash flow targets and monitor its progress towards achieving them. By making these adjustments, we can reconcile the differences between the cash flow and the income statement, and obtain a more accurate picture of the cash generation and consumption of the business.

A company’s gross margins are typically a cash flow issue when an organization doesn’t have a clear understanding of their costs. A key to making money in business his having informed data on actual costs. In some companies, especially those experiencing a high level of growth, many costs are overlooked or not tracked properly. One of the first steps to determining your company’s cash flow issues is to dive into your financial analytics.

• Solutions to cash flow problems can include making a budget or forecast, cutting back on expenses and using factoring services to bridge the gap between accounts receivable payments.
• You may even need to spend time and money getting outside assistance to help with nonpaying customers.
• Additionally, Brex’s corporate card rewards program provides extra value on common growth-related expenses, helping stretch limited resources further during expansion phases.
• Others should prepay until they have built a track record with your company.

However, knowing you have a cash flow problem is not enough–to address the issue, you have to know what’s causing it. From the following summary of Cash Account of X Ltd., prepare Cash Flow Statement for the year ended 31st March 2007 in accordance with AS-3 using the direct method. HighRadius leverages advanced AI to detect financial anomalies with over 95% accuracy across $10.3T cash flow problems in annual transactions. With 7 AI patents, 20+ use cases, FreedaGPT, and LiveCube, it simplifies complex analysis through intuitive prompts. Backed by 2,700+ successful finance transformations and a robust partner ecosystem, HighRadius delivers rapid ROI and seamless ERP and R2R integration—powering the future of intelligent finance.

Especially hidden costs, like subscription fees, overheads, and insurance premiums. If you focus too much on potential profit and not enough on real, bottom-line cash flow, you may miss the tipping point in all the excitement. It all comes down to knowing the common causes, staying prepared, and getting a system in place to prevent or solve any cash flow problems as they arise. A sophisticated cash forecasting solution should provide treasurers with a holistic view of their financial apparatus. Understanding what’s behind your company’s cash flow concerns is the key to fixing them.

The latest statement of financial condition for Brex Treasury LLC is available here. Invoice processing directly affects your company’s cash flow and profitability. Explore how it works, benefits, and how to set up invoice processing automation. At Coltivar, we help founders build cash flow strategies that look ahead—not just react.

How to Successfully Automate Invoice Processing in 5 steps

Here, 11 members from Forbes Business Council provide methods for solving cash flow issues. From adjusting the pricing model to cutting expenses, their cash flow insight follows. Small businesses looking to create a budget should create specific and realistic goals, and overestimating expenses (i.e., expecting to pay more for items this year than you did last) will put you at an advantage. Business owners who understand these will be more likely to avoid them, or at least have a plan for them when they crop up. You might want to be known as the company that provides the best products at the best prices, but doing so can eat into your company’s profit and affect its cash flow.

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Inventory issues become cash flow issues when purchases aren’t matched to sales velocity. This timing mismatch between money going out and money coming in creates a gap that, if unmanaged, can force you to borrow or delay critical expenses. Many businesses rely on short-term financing to float this gap, which works temporarily but can create long-term strain if collections remain slow. You’ll quickly find more cash in your accounts as you accelerate your payment cycle. Automating your A/R efforts is one of the easiest ways to get paid faster. An effective automation platform will help you identify and avoid process bottlenecks, and automated workflows will remove unnecessary delays.

For example, a subsidiary operating in a country with strict currency controls may require a different approach to cash management than one in a more liberal market. Cash management is the process of keeping track of a business’s cash inflows and outflows. With changing economic conditions, it’s no secret that cash management is one of the most crucial aspects of running a successful business. Sudden changes in demand can have drastic consequences when it comes to cash flow. If this is coupled with a lack of cash reserves as mentioned above, it may lead to poor business adaptability and troubled waters for the company. Cash tied up in outstanding receivables is one of the biggest cash flow problems you can have.

• However, solving your cash flow issues doesn’t have to be complicated.
• Your business must be prepared for shifts in customer behaviour if you wish to circumvent future cash flow problems.
• This disconnect often points to collection issues that can seriously impact your cash flow.
• High overhead costs can quickly drain a startup’s cash reserves, particularly during the early stages when revenue might not yet be stable.

In some situations, cash flow issues stem from limited accounting practices or poor bookkeeping. When a business is first getting started, it might not have the funds to afford to hire a full-time accountant or bookkeeper. It’s not uncommon for founders or small business owners to figure they’ll take care of the books themselves.

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Remember, negative cash flow doesn’t necessarily mean that a business has a cash flow problem. It’s common for a business to have negative cash flow after making large payments or experiencing seasonal business fluctuations. Cash flow only becomes a problem when there isn’t enough cash coming in to cover outflow.

Carrying too much debt is a major financial burden for all types of businesses. You may have liabilities from loans, credit card usage, leases, operational costs and more. Owners are often forced to declare bankruptcy when their cash flows are insufficient to meet ongoing debt payments. Inventory is one of the major components of your working capital, which is the difference between your current assets and current liabilities.

The next step is building habits and systems that prevent them from recurring. That means creating a forecasting routine, tightening your billing and collections process, aligning expenses with actual revenue timing, and reviewing key cash metrics weekly—not just when things feel tight. It may seem counterintuitive, but being too successful can be problematic as anemic growth or shrinkage.

Consider outsourcing non-core functions instead of hiring full-time staff during early stages, and look for opportunities to share resources with other startups. The challenge of managing overhead becomes even more complex as a company scales and startup costs grow. Each new hire brings additional costs beyond just salary — from benefits and workspace to technology and training expenses. Without careful planning, these operational costs can grow faster than revenue, creating a dangerous cash flow squeeze. No matter the economy’s current health or the size of your cash reserves, it’s always wise to look for opportunities to rein in unnecessary expenses and drive greater productivity from your existing resources. And automation—particularly accounts receivable automation—can help you achieve those tasks.