Quick Answer: What Causes Cash Flow Problems?

The main causes of cash flow problems are:

  • Low profits or (worse) losses. There is a direct link between low profits or losses and cash flow problems.
  • Over-investment in capacity.
  • Too much stock.
  • Allowing customers too much credit.
  • Overtrading (growing too fast)
  • Seasonal demand.

What are the most common causes of cash flow problems?

The main causes of cash flow problems are:

  1. Low profits or (worse) losses.
  2. Over-investment in capacity.
  3. Too much stock.
  4. Allowing customers too much credit.
  5. Overtrading.
  6. Unexpected changes.
  7. Seasonal demand.

What is a cash flow issue?

Cash flow measures the ability of the company to pay its bills. The cash balance is the cash received minus the cash paid out during the time period. This is where things can get tricky with cash flow management. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management.

What are the solutions to cash flow problems?

All five of these solutions improves your overall cash flow management and sets you up to solve cash flow problems before they occur in the future.

  • Re-Negotiate Supplier Contracts.
  • Improve Your Invoicing Processes.
  • Incentivize Your Clients to Pay Faster.
  • Stretch Out Your Payables.
  • Reduce Expenses.

How can overtrading cause cash flow problems?

Overtrading happens when a business expands too quickly without having the financial resources to support such a quick expansion. Importantly, overtrading can occur even a business is profitable. It is an issue of working capital and cash flow. Overtrading is, therefore, essentially a problem of growth.