5 warning signs of cash flow trouble
If managing cash flow is your biggest pain point, you’re not alone.
More than half of small businesses face cash flow issues every year link opens in a new window.
Steady, predictable cash flow is the key to stability and avoiding financial stress. It helps you cover expenses, take advantage of growth opportunities and weather unexpected challenges.
Here are five signs your company needs help with cash flow, along with recommended solutions.
- Struggling to meet payroll.
If you’re stretched to cover payroll or dipping into reserves to pay employees, that’s a red flag. Payroll is a non-negotiable expense, and recurring shortfalls can signal deeper issues with your cash cycle.
What to do:
Examine your recurring expenses and separate what’s essential from what’s not. Consider pausing or scaling back optional items. Even small cuts of noncritical costs can free up cash and stabilize your operations. - Delaying payables or increasing debt to cover routine expenses.
When regular bills start to pile up or you’re relying on credit cards and/or loans to cover everyday expenses, it’s a sign that your cash flow is out of sync.
What to do:
Improve your invoice management and payment scheduling system. When you’re negotiating contracts, seek better payment terms with vendors. Another contract strategy is to offer early payment discounts from customers. It’s also good to have an expense budget to track where your money goes each month. Automated systems can help you monitor and schedule payments. Minor timing adjustments can help you avoid late fees and unnecessary interest costs. - Experiencing inconsistent revenue.
Seasonal fluctuations, high accounts receivable or erratic customer payments can all lead to uneven cash flow.
What to do:
One way to address inconsistency is to diversify your revenue streams, reducing your dependence on one product, client or season. You can also avoid surprises in revenue gaps by evaluating your financial statements to plan and forecast for lean periods. To keep accounts receivable up-to-date, set clear payment terms with customers, offer small discounts for early payments and set up automated reminders or penalties for late payments. A consistent, proactive collections process can prevent minor delays from becoming big problems. - Tying up cash in inventory.
Too much inventory ties up money and impacts cash flow, but you want to ensure you have enough inventory to meet customer demands and avoid losing sales.
What to do:
Invest in a sound inventory management system that tracks sales trends and helps you maintain optimal stock levels. Consider just-in-time inventory practices that align orders more closely with demand. The goal is balance: keeping enough products on hand to serve customers without overextending your cash. - Missing out on growth opportunities or discounts.
Without enough cash flow, you can’t take advantage of early-payment discounts offered by your vendors, or you may have to turn down large orders because you can’t cover up-front materials and/or labor.
What to do:
Build cash reserves and establish a system for growing them. One way is to automatically deposit a set amount of money into a liquid account, such as a savings, money market or short-term CD.
A holistic solution to managing cash flow.
If you’re spotting any of these warning signs, Commerce Bank’s business specialists and online tools can help.
As your financial services provider, we can help you better manage your company’s cash flow by reviewing bank statements and analyzing your accounts payable and accounts receivable. Using decades of experience, our business specialists can help you develop plans to avoid cash flow crunches and focus on long-term success.
Whether you need to streamline payments, forecast more accurately or gain better visibility into your daily operations, Commerce Bank has solutions. Banking platforms like CashFlow Complete help businesses gain better control and clear visibility of their cash flow by bringing all financial data such as accounts, transactions, receivables and payables into a single, unified view. Businesses can get paid, pay invoices and reduce fraud with this automated tool that integrates with their existing accounting software.
With the right planning, tools and banking guidance, you can take control of your cash flow and create the stability you need to grow your business.
