Home Add to Favorite Contact Submit  
             25 October, 2020
 

    
Category:  Articles » Business

 

The 5 Main Causes Of Cash Flow Problems

Popularity:
         Views: 1227
2012-01-31 01:55:40     
Article by Business Turnaround Services

The ability to generate cash is an important key to business success. Without strong, positive cash flow a business will never thrive and grow. Inadequate cash flow is a symptom of a management problem in a business. Poor cash flow management is known to have placed an end to even successful large businesses, proof that cash flow problems may plague small and large businesses alike. In fact, cash flow problems are responsible for causing over 70% of businesses to fail within their first year. If left unsolved, cash flow problems can become the reason for a business to fail.

Evidence of cash flow problems include the delay of wages paid to staff members, suppliers’ invoices are paid past the due date, unpaid taxes and employee superannuation, and direct debts and cheques dishonoured. If these problems sound familiar to you and your business, it is time for you to take immediate action to address your cash flow problems.

In this article, we take a look at the 5 main causes of cash flow problems in a business. Knowing these dangers will help you develop effective cash flow management and maintain a healthy business cash flow.

1. You have too many debtors

Many businesses today offer credit to their customers so that their clients can take immediate delivery of products and services, even if they don’t have cash on hand. Selling on credit directly impacts your cash flow, especially when customers are unable to pay you at the agreed time. Failure of customers to pay on time, especially when they owe a large amount, will leave you short of cash. As a result, you may need to urgently seek finance or other ways to recompense a delay in payment. Even if credit can be obtained, this additional finance may result in great levels of interest repayments and fees.

One of the ways to avoid having too many debtors is to shorten your credit terms and impose this strictly. For example, if you offer 60 to 90 days in credit, shorten it to 15-30 days. It will also be helpful to delegate a staff member to send emails and call customers to collect their payments.

2. You have too many creditors

Having too many creditors may mean that your business has a large amount of debt to pay off. This is particularly disastrous for your cash flow in instances that your business is running inefficiently, you have very limited cash reserves and creditors are already demanding for payment. Late payments can quickly pile up making it even more difficult for you to pay off the amounts owed. Late payments can also damage your relationships with creditors and may result in other problems such as reduced credit terms and premium pricing.

3. Over-financing your business

Borrowing large amounts of money to finance your business involves additional charges such as interest and may require shorter repayment schedules. If you are not wary of your increased borrowing, it can take control of your business. The more finance you take on, often the harsher the terms of the loan, usually at a higher interest rate. Often, borrowing only delays a future cash flow crisis, which may be even worse than the one you are currently facing.

4. Over-selling credit

It would be ideal if on close of a sale the customer always paid with cash up front. However, many businesses today offer credit to their customers. By offering credit to customers, you may not have cash on hand until the payment due date. As a result, you may need to borrow just to continue normal operations. Increased sales on credit may lead to a greater need to borrow, a pattern that may prove to be disastrous to your cash flow.

5. Over-investment

When you have cash on hand, it can be tempting to buy assets such as office equipment, furniture or vehicles. Spending on such items can leave you short of money to finance daily operations and to pay off any unexpected costs that may arise. It is always prudent and good practice to have cash reserves ready for any emergencies.

Some final words

Effective cash flow planning is critical in order for your business to avoid further problems. To address any cash flow problems your business may have, you can also employ the services of a business turnaround expert to help you effectively plan and manage your cash flow.

Specialized in: Business In Trouble - Business In Trouble Sydney - Business Turnaround - Business Turnaround Sydney - Business Turnaround Services - Business Turnaround Services Sydney - Business Recovery - Business Recovery Sydney - Business Recovery Services - Business Improvement - Business Improvement Sydney - Turnaround Services Sydney - Turnaround Services - Business Recovery Consultants - Business Recovery Specialists - Business Turnaround Consultants - Business Turnaround Specialists
URL: http://www.businessturnaround.net.au
Print article      Bookmark this page
Related Articles 
Get the best quality timber and oak flooring products and accessories (Popularity: ): The flooring of any premises is considered as the most essential part of the construction process. The floorings not only provide the looks to the building rather it is also responsible for maintaining adequate temperature in the premises. The latest trend is of wooden floorings consists of timber flowing and oak floorings. Hundreds of varieties, styles, qualities and colour combinations are available from which one can select any suitable style. ...
How To Safeguard Environment By Reducing Vibration And Using Radiation Shield? (Popularity: ): The current world order is not looking as it should be or the way you imagine it to be. The devastation caused by the pandemic shows how lethal it could be if you do not respect nature. During this pandemic, climate change as an intuitive might have taken a backseat for a while in the global political arena but it is a fact that you cannot stay in that stage ...
North America will be the fastest growing region for CMC in the global aerospace industry (Popularity: ): According to a new market report published by Lucintel, the future for CMC in the global aerospace industry looks positive with opportunities in the commercial aircraft, military aircraft, and space segments. CMC consumption in the global aerospace industry is expected to grow with a CAGR of 9% from 2017 to 2022. The major growth drivers for this market are increasing demand for lightweight materials in the aerospace industry and capability ...
Delivering the potential of thermoplastic composites (Popularity: ): The thermoplastic composite industry is developing and new materials are being acquainted with the market. Choice of the correct material for your application isn't clear because of the absence of near information, as estimated by a free specialist, between the diverse material frameworks. Dependable material property information is significant amid the segment configuration stage. Information on preparing is expected to assess part maneuverability, while mechanical test information is required to ...
Understand how deep learning platform works (Popularity: ): ClusterOne is the largest deep learning platform developed with an aim to help machine learning teams engaged in development of AI applications. It is easy to import data and code on the ClusterOne to run your projects as smooth as possible. The structure of this largest deep learning platform is very simple and the structure consists of three major elements: • Projects • Datasets • JobsProjects and Datasets are required to complete a ...


Related Business 
American Cash Flow Institute - Cash Flow Industry Training (Popularity: ): Offers cash flow training and tools to unlock financial opportunities in real estate, factoring, loans and business funding.
Cash Management & Cash Flow Projection Software (Popularity: ): CASH Cop is designed for use with QuickBooks. It quickly integrates invoices, bills, estimates, purchase orders, budget projection, etc. into a 6-wk cash management screen and 1-yr cash flow projection. The creation of what-if scenarios is intuitive, and the flexibility permits users to reflect how their company operates.
WinForecast Professional (Popularity: ): Cash flow and financial forecasting software. Winforecast is a financial modeller providing integrated forecasts of profit and loss, balance sheet, cash flow, funds flow and ratios.
American Cash Flow Association (Popularity: ): Offers support in the cash flow industry by building relationships between brokers and funding sources.
Evergreen Cash Flow Solutions (Popularity: ): Works with industries to offer extra cash flow.
Accutrac Capital – Factoring Company (Popularity: ): Accutrac is a well respected factoring receivable company serving USA & Canada that offers Invoice Factoring, PO Financing, Letter Of Credit and AR Management. When cash flow problems give you sleepless nights, Accutrac Capital offers you an alternative to mainstream lenders. We’re all about helping business owners with cash flow solutions that don’t readily exist through traditional lending.
Cash Flow Navigator: Cash Flow Financial Planning (Popularity: ): Cash Flow Navigator is a Financial Planning Advisor provides free information and resources for their members to plan and achieve Financial Independence. The company is located in Bedminster, NJ, and was founded by Keith Whelan. Keith, his wife Cindy, and their two sons live in New Jersey. He is a graduate of Columbia University Business School and has over 30 years experience in the banking and financial services industry.
Advocate Capital, Inc. (Popularity: ): Offers strategic finance alternatives to law firms with cash flow problems.
Cash Relief Ltd. (Popularity: ): Cash Relief is a ground-breaking online lender. We launched our first website in October 2008 and have rapidly become one of New Zealand's most innovativecredit businesses. Our mission is to solve people's short term and urgent cash flow problems with an equally short term and responsible solution. We are transforming the NZ credit market by offering small, short term loans with more speed, convenience and flexibility than banks, high street ...
Factoring Receivables Companies - Accutrac Capital (Popularity: ): Accutrac is a well respected factoring company serving USA and Canada that offers AR Factoring, Invoice Factoring, PO Financing, asset backed lending, letters of credit & accounts receivable management. When cash flow problems give you sleepless nights, Accutrac Capital Solutions offers you an alternative to mainstream lenders. We’re all about helping business owners with cash flow solutions that don’t readily exist through traditional lending.