Causes of Cash Flow Problems: Keeping Your Business Healthy

Causes of Cash Flow Problems: How to Keep Your Business Problem-Free

Regardless of the type of business you operate, you’ll need cash flow to move forward, which is why you need to gain a deeper understanding of how cash flow works and what the common causes of cash flow problems are. When you consider the fact that cash flow problems typically lead to business liquidity problems, it becomes even more important for you to avoid such problems. And what better way to avoid them than to learn what the common causes of cash flow problems are, right?

Among the most common causes of cash flow problems is when you agree to deliver a product or service to a client before collecting payment. While this may work out fine with a cash-on-delivery arrangement, problems can arise if you agree to collect payment after, say, 30 days and the client reneges on the agreement. Problems can also arise from failure to track business results properly. It may be a good idea to take a closer look at your supply ordering and inventory management systems to see if there are ways to reduce cash flow attrition and speed up the cash inflow.

Survey Highlights Causes of Cash Flow Problems

The most recent Lloyds TSB “Business in Britain” survey has revealed that late payments are still the most common causes of cash flow problems in the UK. The East of England and the East Midlands were the most affected by this factor, with about 68% of business in those regions blaming late payments for their cash flow problems. Other than that, a fall in demand and the added pressure on overdraft facilities of businesses were also cited as key contributory factors to cash flow problems. In light of these results, businesses are advised to make use of credit insurance as a viable debt management solution.

Causes of Cash Flow Problems: Reasons for Non-payment

According to recent research, at least one in eight invoices issued by UK businesses remains unpaid each year. Considering this, it’s no wonder then why unpaid invoices continue to be listed among the major causes of cash flow problems for UK businesses. And when the reasons for non-payment were analysed, businesses going into liquidation went to the top of the list, along with work disputes. So, if you’re having problems collecting on invoices, you may want to enter into a debt management program with your debtors while there’s still a chance for you to get at least part of what they owe.

If you’re currently experiencing cash flow problems, then you may want to seek debt management advice and get the necessary support from agencies like Bridgestone. Unpaid invoices can indeed cause a great administrative burden, particularly on small businesses, and you’ll surely benefit from the advice of professionals specifically trained to handle such situations. Whatever you decide to do, be sure to do it as soon as possible because any delay reduces your chance of recovering from the causes of cash flow problems you’re currently suffering from.