how to solve cash flow problems

How Cash Flow Problems Start and How to Fix Them

“It was a lot of things. Got too big too fast.”

That’s Sydney in Episode 5 of the hit TV show, The Bear , talking to a coworker about why her catering business failed. 

“Wasn’t exactly liquid enough for a brick and mortar. And so running it out of my garage was…stupid. My credit got destroyed.”

Sydney goes on to describe how a botched job with an important customer sent her financially fragile business into a tailspin from which it never recovered. 

While her story may be fictional, the scenario she describes is all too common among small businesses. 

“Many first time business owners don’t understand the importance of cash flow in their business,” warns Georgina Cranston, Business Consultant with Shippensburg University (SBDC ). “They often fail to have enough cash reserves to carry through their lean months. 

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How Cash Flow Problems Begin

When you’re taking a trip, you plan how to get there, and probably do some research to avoid potential problems along the way. When you’re starting a business, anticipating potential cash flow issues can mean the difference between failure and success. 

Here are some common cash flow obstacles your business should prepare for:

Rapid business growth without enough working capital

When you’re starting a business, you may think that growth is good. It can be. 

 But it can also be dangerous. 

Rapid growth can leave your business struggling to hire employees or contractors and pay them on time, and you can find your business facing unexpected cash flow issues if customers pay slowly, or if expenses need to be paid before the money comes in. 

Poor financial management & planning

Business owners often know cash flow is important, but unless they have backgrounds in finance or accounting, they don’t understand how to prioritize it. 

Small business owners “appear to adopt a minimum standard rather than attempting to achieve a level of best practice when it comes to cash flow management,” say researchers Isle, Freudenberg, and Sarker, in a research paper titled, “ Is the literacy of small business owners important for cash flow management?: The experts’ perspective .” 

The researchers go on to state that, “Previous research suggests that SBOs lack the required level of financial literacy to make important decisions for the business.”

This may seem discouraging, but there are many ways business owners can improve their financial literacy to make better decisions. We’ll cover those in a moment.

First, let’s cover some of the common causes of cash flow problems. 

Seasonal business revenue cycles

Most businesses experience some element of seasonality. Retail businesses may find the holiday season makes it or breaks their year. Restaurants may pick up in the summer and slow down in the winter—or vice versa if they are located in places like Florida and Arizona where tourists and snowbirds go to escape the cold. 

B2B businesses may experience a sales spike near the end of the year when clients want to spend money to take advantage of tax deductions. 

When there’s a busy season, there’s often a slow season when sales die down. Without cash flow to survive the slow season, the business may fail. 

Poor billing/collection processes

For businesses that don’t get paid in full when a sale is made, it’s essential to collect payments as quickly as possible. The older accounts become, the more likely you’ll have trouble collecting. 

“Businesses that are not in retail, who usually get paid for a service when the sale is made, may have an outlay of cash early in a project but not get paid for months,” Cranston warns. “This can create havoc if there is not enough cash on hand to cover monthly expenses.”

Unexpected expenses

Poor cash flow occurs when cash inflows don’t keep up with cash outflows. Unexpected expenses lead to shortfalls that create stress if the business owner doesn’t have access to capital like lines of credit or even business credit cards to help tide them through. 

Fail to track business finances

One big problem Ednethia Thomas, VP Community Outreach and Client Services with SCORE Charlotte sees  with clients is a lack of clear awareness around their business finances. “All of the money (is) going in and out of the same account,” she says. Clients may not be tracking their money or their accounts payable. “When asked what they need or what their numbers are, there isn’t a lot of clarity,” she warns.

“It’s surprising how many small business owners do not have a handle on their financial situation,” agrees Cranston. 

Expansion decisions without cash flow context

Just like Sydney’s catering business, it’s entirely possible for a business to get too big too fast. Before expanding, create a cash flow forecast to help you understand what resources your business needs to grow successfully. 

Ways Cash Flow Difficulties Negatively Impact Small Businesses

Small cash flow problems can quickly escalate and cause bigger problems if you’re not careful. 

Can’t cover regular operating expenses like payroll, rent

Essential bills must be paid or the business shuts down. The Department of Labor does not look kindly on businesses that don’t pay payroll in a timely manner, and failing to pay essential bills like rent for a bricks and mortar business, or website hosting for an online business, can result in the lights being shut off for the business. 

Difficulties repaying lines of credit or other financing

Paying small business loans and financing on time is critical both to maintaining the financial health of your business, as well as establishing good business credit scores and keeping them strong. 

Fall behind and you’ll likely incur late fees. You may even find your business stuck with higher interest rates in the future if your business credit takes a hit.

Need to cut staff or operating budgets

Laying off workers is never easy, and it’s even harder when you’re left with no choice because your business simply can’t afford to make payroll. Similarly, abruptly cutting expenses can lead to lower morale or productivity as employees wonder if their job is safe. 

Hinders growth plans

Customers may be clamoring for your products or services, but without capital you may simply not be able to expand. If you move forward anyway you may find your business saddled with complaints if product or service quality suffers. 

Creates tension with vendors waiting for payment

One of my friends worked in the accounting department of a medium-sized business where a managers was notorious for stashing checks to vendors in his desk drawer. When a vendor complained loudly enough (or long enough), he’d pull out the check and pay them. 

That’s not a great way to do business. After all, if you want your business to be paid on time, it’s common courtesy to do that for others. (Plus paying on time can protect your business credit scores.)

Solutions for Fixing Cash Flow Problems

Small business owners often have “no systematic or accurate method for monitoring cash (finances) for the business,” warns Darryl Horton, CPA, senior business consultant with Michigan SBDC Capital Region . As a result, they’re unable to effectively or accurately monitor cash inflows (and) outflows.”

So the very first thing you should do is to set up a budget and make sure you are tracking your finances either with accounting software or with the help of a bookkeeper or accounting professional. 

Knowing where your business stands financially is critical. 

Here are additional steps you can take to help protect against common cash flow problems.

Invoice clients immediately after work completed

Don’t wait to bill your clients. The sooner you invoice, the faster you get paid. 

When you bring on a new client, set up clear payment terms, with incentives (offer discounts) to get clients to pay faster, or penalties (like late payments) if they pay slowly. 

Some clients, especially large customers, may require longer payment terms. In those cases invoice factoring or invoice financing may be necessary to maintain positive cash flow.

Build an emergency fund and reserve capital

“Planning for cash flow fluctuations from the start is key!” Cranston emphasizes. “Also, having a healthy (prudent) cash reserve on hand can also save a business when things get tough.”

Create and adhere to an expense budget

“Develop a monthly budget, accurately identifying projected revenue/sales and expenses,” advises Horton. “You should also do this on an annual basis.”

Institute a purchase order system and approval workflows 

As your business grows, you may delegate spending decisions to employees. If you’re not careful, you may wind up incurring expenses your business can’t afford or doesn’t need. Create workflows to approve expenses, without making the system so cumbersome that employees don’t get what they need. 

Manage inventory carefully

Whether it’s too much inventory, or too little inventory, you need to continually strive to get inventory management right. This is true for bricks and mortar retail businesses, but especially for e-commerce businesses where “going viral” can deplete inventory quickly or fickle tastes can leave you with unsold inventory that racks up storage costs. 

Consider adjusting payment terms with vendors/clients

Pay attention to your accounts receivables so you’ll know right away if customers or clients aren’t paying on time. “Review your accounts receivables policies to improve timely payments by customers,” Horton recommends. “This could include adjusting payment terms, or implementing incentives for early payment.”

Only take on new expenses or growth within the context of cash availability

Before you agree to that big project or bring on that new client, review how that will impact your cash flow. As said before, growth isn’t good if you can’t handle the extra costs of new business, whether that’s labor, supplies, inventory or other costs. 

Look into working capital loans or lines of credit

The time to line up a line of credit or loan is often before you need it so it is available when you do.

“Sometimes, clients tell me that they can self-finance their business with savings, which can be good,” says Cranston, “but I often advise them to secure a line of credit at least while their cash balances and assets are strong since they may need it later on and it’s harder to secure a loan or line of credit when the balance sheet looks unhealthy.”

“(Business owners) actually need capital,” Thomas concurs. “The only caveat to that is once they have it, they really aren’t sure what to do with it. This leads to the cycle continuing.”

If you have outstanding debt, review terms periodically to find out whether refinancing your business loans or consolidating debt can save your business money, or help you get better repayment terms. “Consolidate high-interest commercial loans into a lower interest loan, freeing up available cash and increasing reserves,” Horton suggests. 

Prioritize payments of essential expenses first

Clearly understanding what business expenses are most essential can help you prioritize them if money gets tight. “Paying for things that are unnecessary,” is a red flag, Cranston warns.

Horton recommends entrepreneurs “review expenses to determine those that can be adjusted or eliminated.”

Review pricing and sales

Sales are key, but if you’re not charging enough, no amount of finagling the budget will solve your problem. Make sure you understand your cost of goods sold, and whether you’re pricing high enough to maintain sustainable profit margins. 

“Review methods for increasing sales,” Horton suggests, “which could include adjusting pricing or marketing strategies, or identifying additional revenue streams.”

Outsource Accounting Help 

If finances aren’t your forte, consider working with professionals who can help. There are a number of resources that can help you identify and address business cash flow problems. 

Hire a CFO  of (fractional CFO) consultant for high-level fixes

You may not need a full-time CFO. A fractional CFO can help your business on a short-term or part-time basis. Many startups use fractional CFOs until they have the budget to hire someone full-time. But experienced businesses may benefit from this expertise as well. 

Work with bookkeepers to improve financial processes

If you don’t have the time or expertise to handle your own bookkeeping (and not just once a year when taxes are due), consider using a bookkeeping service to keep your finances up to date. 

Not only will this make tax time easier, they can also help you run cash flow statements, profit-and-loss statements, accounts receivable aging reports, and more. 

If you aren’t ready to hire a bookkeeper, consider hiring one to help you set up your chart of accounts in your accounting software. Get familiar with the basics so your books don’t require a do-over at tax time. 

Employ collection agencies to resolve chronic client payment issues

If you have clients who are falling further and further behind on payment, talk to a collection agency to find out whether it makes sense to let them take over this task. Going forward, you’ll want to make sure you build the cost of collections into your contracts, should it become necessary. 

Meet with a mentor

Even experienced business owners often meet with business mentors for advice and a sounding board. Organizations like Small Business Development Centers (SBDC) and SCORE provide free mentoring to business owners. You can find these and other SBA Resource partners on the SBA website . 

Bottom Line: Common Causes of and Solutions for Cash Flow Issues

Knowing your numbers, managing your cash flow and planning ahead are all key to building a financially healthy business. 

“Small business owners usually go into business because they have a passion or talent for something, and think they can make money at it. What they often fail to take into account is that owning a small business means you are responsible for all aspects of it—HR, marketing, finance, customer relations, etc.”, Cranston observes. “What sinks most small businesses are cash flow problems. Planning for this sink hole can alleviate the failure rate.”

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This article was originally written on February 29, 2024 and updated on March 1, 2024.

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Gerri Detweiler

Education Consultant, Nav

Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

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Financing | How To

7 Ways to Solve Cash Flow Problems

Published November 13, 2023

Published Nov 13, 2023

WRITTEN BY: Andrew Wan

This article is part of a larger series on Business Financing .

• 1. Determine the Impact
• 2. Determine the Amount & Source
• 3. Reduce Unnecessary Expenses
• 4. Encourage Faster Payment of Income
• 5. Negotiate Terms on Business Debts

6. Build an Emergency Fund

7. get additional funding, bottom line.

If you run your own company and are looking for ways on how to solve cash flow problems, this guide contains recommendations for how to identify and fix these issues. Some solutions include negotiating terms with vendors, reducing unnecessary expenses, and getting additional funding from loans and other sources.

Bluevine, for instance, is a lender we recommend if you want to get additional funding. It issues a small business line of credit that you can use to cover cash flow shortages. You can get up to $250,000 in funding in as little as 24 hours.

Visit Bluevine

1. Determine the Impact of Your Cash Flow Shortage

Identify the impact to your business finances and credit.

Shortages in cash flow can impact both your business revenue and expenses. Revenue, for instance, can be negatively impacted if you are unable to restock inventory. Without sufficient levels of inventory, you could see your sales drop.

Your business expenses can also be affected. For example, if a cash flow shortage results in the inability to pay business debts, you may be charged additional late fees. Depending on the timing of your payment, your business credit may also be negatively impacted, something that can result in lenders charging you higher rates and fees for loans.

Figure out the frequency and amount of the cash flow shortage

Determining how much and how frequently you’re typically short on funds is another thing that can help you determine how quickly you may need to look at your business cash flow problems.

For example, if you’re only short on funds several months throughout the year, you may just need to reallocate your funds from your higher-earning months to account for the seasonality of your product or service. Meanwhile, if you have a shortage regularly, you may need to take a more detailed look at your business income and expenses.

2. Determine the Amount and Source of the Cash Flow Shortage

Identify when you receive funds from income sources.

Income sources can include revenue you earn from sales and funds received from third-party vendors. This can include accounts receivables and sales you have made and issued invoices on but have not yet received payment for, or an outstanding invoice .

An important item to note, however, is that while some items may be recorded as income, you should consider when you receive the funds for purposes of determining the source of your cash flow shortage. This can help you later identify if you need to adjust the terms of your invoices to encourage faster repayment or make other arrangements such as getting funding from something like invoice financing to cover temporary cash flow shortages.

Create a list of when you must pay business expenses

Business expenses can include things like payroll expenses, loan payments, lease payments, inventory costs, and landscaping. To get a list of all expenses more easily, you can review your business bank statements to identify outflow of funds.

We recommend reviewing at least the past 12 months to capture as many expenses as possible as some of the costs associated with running a company may not be charged on a monthly basis. Insurance premiums, for instance, might only be paid on an annual basis.

3. Reduce Unnecessary Business Expenses

Cutting down on business expenses can be an easy solution to solving cash flow problems. You can use our worksheet on common IRS business expenses as a start. Be careful, however, not to eliminate an item that helps generate revenue or sales. You can do this by analyzing the return on investment (ROI) you’re getting from things you’re paying for.

Some examples of expenses you can consider eliminating or reducing can include:

• Landscaping and pest control
• Loan payments for business equipment
• Leasing expenses for office space
• Fees you’re paying for business software
• Fees for phone, computer support, and internet

If you’re unable to eliminate certain expenses, check if there are any cheaper alternatives with other providers. You can also consider reducing the frequency at which you have certain services performed. Finally, refinancing loans can also help by lowering monthly payments and reducing your interest rate.

4. Encourage Faster Repayment of Income

Provide volume discounts.

If you need funds quickly, providing a volume discount on orders can encourage customers to buy more than what they may initially need. This can provide your company with a much-needed infusion of funds while also allowing your clients to save money in the long run. This is something that can also lead to a more loyal customer base, which can yield additional long-term profits for your business.

Offer discounted prices for repeat customers

To encourage a more stable and consistent source of revenue, you can offer discounts to repeat customers. Discounts can be issued based on the number of orders placed in a specified time frame, or the dollar amount of orders placed. Depending on your company’s product or service, you can also consider offering discounts for customers who agree to sign a contract for a minimum period of time.

Allow discounts for automatic payments

Offering your clients an incentive for automatic payments can ensure not only more consistency as far as when you’ll receive payment, but it can also reduce the likelihood of your customers being delinquent.

Accept more methods of payment

If your business accepts more forms of payment, it can make it easier for customers to send you funds. Forms of payment you can consider accepting can include the following:

• Credit cards (American Express, Discover, Visa, and Mastercard)
• Peer-to-peer (P2P) payment methods, such as Venmo or PayPal
• Online payments
• Wire transfers

Some forms of payment assess fees, so you’ll want to make sure that the costs you incur from accepting additional forms of payment provide a sufficiently high ROI to justify the added expenses.

Provide discounts for paying with cash

To avoid the fees associated with accepting certain payment methods, you can encourage customers to pay with cash by offering a discount. Check out our guide on cash discounting for more details on how it works and what federal regulations you might need to be aware of.

Offer early payment discounts & discourage late payments

Offering an early payment discount can encourage customers to pay you more quickly. Be careful to not issue so large of a discount that it cuts into your net profit by too much. In addition to offering early payment discounts, charging late fees can give customers another incentive to pay invoices in a timely manner.

When considering how much to charge for late fees, don’t forget to consider any state or federal regulations that may limit the amount that can be charged. Charging too much may land you in trouble from a compliance perspective, something that can lead to additional fines and penalties.

5. Negotiate Payment Terms on Business Debts

Ask for extended payment terms.

If any of your vendors or suppliers offer you a grace period, you can ask them for more time to make payment in full without incurring any penalties. Some vendors require payment that is due on receipt, but you can ask for terms as long as 30 to 90 or more days to allow your business more time to hold onto funds.

Request discounted pricing

Just like you can offer discounted pricing to customers as a way to encourage faster repayment, you can do the same with your suppliers. For example, you can request discounts for being a long-time customer, being a repeat customer, or making payments in an alternative manner.

Refinance debt to a lower interest rate or longer term

When you refinance debt, you often can choose a lower rate and a different loan term. A lower interest rate can reduce the interest charges you pay over the life of the loan, while a longer loan term can reduce your total monthly payments by spreading the cost over a longer period.

If you decide to refinance debt, don’t forget to account for any origination fees or costs associated with getting a new loan. Also consider the possibility that while a refinance may help in the short term with your cash flow, it could be detrimental in the long run—depending on the total interest charges and loan fees you’ll be paying.

You can adjust the size of your emergency fund based on the frequency and dollar amount you typically fall short. At a minimum, we recommend having enough reserves to cover at least six months of operating expenses.

Get short-term loans for working capital

Short-term business loans typically allow funds to be used for a wide variety of business purposes. Some examples include payroll, inventory, rent, utilities, and other daily expenses. Short-term loans can often be issued in as little as one business day, but in exchange, they often carry higher interest rates compared to traditional loans. They also have a short repayment term, usually between several months to three years.

If you want to get a working capital loan, we recommend National Funding, which provides excellent customer service and customized loan options with up to $400,000 in funding. Depending on your business qualifications and loan details, you could also qualify for same-day funding.

Visit National Funding

Use a small business line of credit

A small business line of credit gives you the ability to draw funds on an as-needed basis. It’s a revolving credit line that allows you to draw funds up to the maximum credit limit you’re given, with interest charges only being applied to your outstanding balance. Just like with short-term loans, many small business line of credit providers allow funds to be used for any business purpose.

Bluevine is a lender we recommend for a small business line of credit. It offers up to $250,000 in funding and repayment terms as long as 12 months. You can also get funded in as little as 24 hours.

Apply for a small business credit card

With a business credit card, you’ll have a revolving line of credit you can use to make business-related purchases. It is ideal for small or medium expenses, recurring costs, and daily purchases.

Business credit cards give you the option to pay only a small portion of your outstanding balance, although the annual percentage rate (APR) is typically above 20%. As a result, it’s best to pay off the balance in full or within several months if you want to reduce the interest charges.

Many business credit cards also have a rewards program offering cash back or points that can be redeemed for merchandise or travel rewards. We recommend considering the U.S Bank Business Triple Cash Rewards World Elite Mastercard ® . It can offer up to 5% cash back on eligible purchases and is currently also offering a 0% intro APR on purchases and balance transfer for 15 billing cycles.

Apply for personal loans for business purposes

If your business credit is not good enough to get a business loan, personal loans for business purposes can be a good alternative. These loans focus on your personal credit as part of the qualification process. Personal loans can include lines of credit, term loans, and secured loans, such as home equity loans and home equity lines of credit.

If you’re looking for a personal loan for business purposes, consider checking out Upstart. It tops our list of the best personal loans for business funding , offering up to $50,000 in funding in as little as 24 hours.

Visit Upstart

Access your retirement savings with a rollover for business startups (ROBS)

With a ROBS , you have the ability to access your retirement funds tax- and penalty-free. A ROBS is not a loan, so it’s easier to get as it does not have many of the small business loan requirements commonly associated with a typical loan such as a minimum credit score, time in business, or revenue. Rather, one of the few requirements to get a ROBS is to have a minimum balance of around $50,000 in your retirement accounts.

A ROBS is a complex transaction that can result in fines and penalties if done incorrectly, so we recommend using the service of a ROBS provider like Guidant Financial to walk you through the process. The provider has comprehensive legal and audit support services as well as a satisfaction guarantee for its services.

Visit Guidant Financial

Frequently Asked Questions (FAQs)

How can a business improve its cash flow.

Cash flow can be improved by adjusting the timing of making debt payments and of receiving income. Other methods include reducing business debt by refinancing debt, negotiating terms with creditors, and reducing unnecessary expenses. You can also increase income by encouraging faster repayment of invoices and offering discounts.

How is cash flow important for a business?

Cash flow can negatively impact a company’s credit and finances. Without sufficient funds, a business can struggle to make debt payments in a timely manner. Not having sufficient funds can also hinder a company’s ability to restock inventory, something that can hurt its sales.

What are ways to identify cash flow issues?

Reviewing at least the past 12 months of business bank statements can help you identify all of your recurring and less frequently occurring business expenses. Statements to payments made to business credit cards should also be reviewed.

You now know the many solutions to how to solve cash flow problems. You can reduce unnecessary business expenses, encourage faster repayment of accounts receivables, negotiate more flexible terms with vendors, and more.

If you’ll be getting a loan, the tips we mention in our article on how to get a small business loan can increase your approval odds. Depending on the severity of your cash flow issues, you can choose to employ one or multiple solutions we’ve identified in this guide.

About the Author

Find Andrew On LinkedIn

Andrew Wan is a staff writer at Fit Small Business, specializing in Small Business Finance. He has over a decade of experience in mortgage lending, having held roles as a loan officer, processor, and underwriter. He is experienced with various types of mortgage loans, including Federal Housing Administration government mortgages as a Direct Endorsement (DE) underwriter. Andrew received an M.B.A. from the University of California at Irvine, a Master of Studies in Law from the University of Southern California, and holds a California real estate broker license.

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Cash Flow Problems: Why They Occur & How to Solve Them

• Parag Patel

On a fundamental level, cash flow problems occur when a business has too many expenses without enough revenue. In reality, it’s often a lot more complicated than this, but it can definitively be said that when you have cash flow issues, it can bring your business operations to a halt. So, how do cash flow problems start? And what are the best ways to avoid cash flow problems — or fix them? Let’s explore some of the most common issues that can lead to cash flow problems and some potential solutions for solving them . 

In this article, we explore the general nature of cash flow challenges. To investigate this topic in more detail—particularly how to protect your business from cash flow issues—check out our downloadable resource: How to Use A/R Automation to Improve Cash Flow .

What is cash flow in business?

The business world is drowning in (pun intended) water-related money metaphors. You have revenue streams, liquid ity, trickle-down economics, and the subject of our article today: cash flows. 

“Cash flow” refers to the net funds moving into and out of your business during a set period. And this focus is exclusively for realized funds —or cash—rather than credit lines, unearned revenue, or anything else that might appear as an income or expense on your typical balance sheet.

A positive cash flow suggests that a business is collecting more funds than it is spending. In contrast, a negative cash flow indicates the opposite — that more money is leaving the company than it is receiving.

How many businesses have cash flow problems?

If you spend time monitoring business trends — collectively or within your organization — you’ll quickly notice that operations tend to be cyclical. Rarely do you find an industry, market, or corporation that performs on a steady, predictable basis; the most consistent element of any business trend is its inconsistency.

Instead, successful companies need agility, adaptive strategies, marketing efforts, and growth plans that conform to the realities on the ground. A strong cash position is a common mechanism used to maintain a business’s flexibility. Unfortunately, problems with cash flow are relatively common.

Looking back at data from before the COVID-19 pandemic, a 2019 survey conducted by Intuit QuickBooks found that 61% of responding small business owners struggled with cash flow. Further, 52% indicated that they had lost $10,000 or more by missing out on a project or sale due to a lack of funds.

And while corresponding post-pandemic numbers regarding overall trends are currently hard to find, according to a post-mortem study of failed business startups conducted by CB Insights, 44% of responding companies cited “running out of cash” as the primary reason for closing their doors. The survey found that 3.7 more startups in 2022 struggled due to cash flow and investing issues than in 2020.

Cash flow problem causes and solutions

The problem: delinquent payments.

The longer it takes to get paid, the thinner your cash reserves will run. So ineffective accounts receivable (A/R) processes that lead to a longer payment cycle should be avoided. These delays might be the result of:

• Inaccurate invoices
• Process bottlenecks
• Poor follow-up
• Too many required authorizations

Further, you’ll want to spend sufficient time vetting any existing or potential customers you are considering to offer credit terms. After all, allowing a struggling or unresponsive business to secure goods and services without up-front payment leaves you vulnerable to building up bad debt and losing revenue.

The solution: Automated A/R

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. 

Similarly, when you employ these best practices for your collection efforts , you’ll quickly find that chasing payments without human intervention on a preprogrammed schedule can promote more consistent, prompt, and responsive customer communication.

Further, by supplementing these tools with early-payment discounts and easy-pay options , you can remove additional barriers from the payment cycle.

The problem: Excess inventory

Any company manufacturing a physical good knows the importance of effective warehouse management . As inventories grow, the floorspace, technology, and personnel needed to handle these products also develop. Keeping too much inventory in stock can artificially inflate your distribution costs and begin to tie up more of your cash reserve than necessary.

The solution: Optimized production runs

Manufacturing too much can be as harmful as manufacturing too little. But by matching your production efforts with accurate sales data, you can avoid sitting on large pools of inventory or raw materials. Depending on the size of your company, you should invest in just-in-time manufacturing tools to help you manage the appropriate balance. Otherwise, consider tuning or expanding your analytics capabilities for more precise insight into your needs.

The problem: Low reserves

Bad things happen to good businesses. You might experience a market downturn, production hiccups, seasonal sales, labor shortage, or any challenge temporarily limiting your income. Unless you have a prediction engine worthy of being in a sci-fi novel, you likely will have little — if any — advance notice before these problems hit.

A healthy cash reserve will help mitigate any potential fallout and give you the time needed to weather a temporary shift or adapt to a permanent one. Conversely, if you have a relatively small account balance when trouble hits, you’ll likely have to quickly obtain loans — which may or may not offer reasonable payment terms — or face a potential shutdown.

The solution: Reduced waste

Finding ways to make your money last longer can be handy when refilling your cash reserves. Are there unnecessary or duplicate processes that you can eliminate? Do you pay for any non-critical services that you can temporarily suspend? Can you cut back on your packaging, opting for a simpler, more sleek design? Are you need to get early-payment discounts with your suppliers?

Try to negotiate for more favorable payment terms with your vendors. Whatever actions you pursue, ideally, you’ll want to have sufficient reserves to cover roughly six months’ worth of expenses.

The problem: Inaccurate pricing

An individual sale does not necessarily mean positive cash flow. For example, if the item or service is not appropriately priced to account for all related expenses — along with a profit margin — you could be losing money. Admittedly, some businesses will take a hit on a small ticket or baseline offerings with an eye on recouping these losses with later, large ticket or add-on purchases. But if these losses are unintentional — such as increased shipping costs or energy use — increased sales may result in a shrinking bank account.

Similarly, poor credit terms can prove equally damaging to your cash reserve. If you’re charging too little interest or offering generous repayment timelines, you’re leaving more of your company’s value in customers’ hands rather than your own.

The solution: Nuanced analytics

If you’re worried about undercharging for your goods or services, you should see what your competitors are doing. You should also perform an accounts receivable analysis and a detailed evaluation of the costs for the raw materials, energy, and labor used in your day-to-day business operations. You can more easily adapt to net a profit with a clearer understanding of your spending. And depending on what you find, it might be time to raise your prices.

The problem: Rapid growth

It may seem counterintuitive, but being too successful can be problematic as anemic growth or shrinkage. For instance, quickly expanding into a new region or market will likely demand significant, up-front investments. And while this increased market capture might denote overall health, pursuing too many of these expansions simultaneously could leave your business with insufficient reserves to handle a market downturn.

Similarly, with increased sales, you’ll have a proportional increase in the material and personnel costs needed to handle these higher volumes. However, given that the incoming payments for these outgoing shipments likely won’t happen for the next 30, 60, or 90 days, it’s possible to hit negative cash flow despite your “success.” And if your expenses begin to exceed your working capital, you could be facing major financial harm.

The solution: Predictive forecasting

Beyond using analytics to understand what is currently happening with your business, you should invest in forecasting software to better predict what will happen with your business. The right tools can digest your business data to identify patterns beyond human perception, providing new insights. And these types of solutions can prove particularly useful during periods of growth, helping to track and forecast potential demand or cost increases that you may not foresee arising from the ongoing success.

Improve your A/R processes with Invoiced

Just as water should flow through a stream, cash should regularly move in and out of business; if there are problems upstream, available funds might dry up completely, and if there are downstream challenges, all manner of collateral damage might occur due to poor outflow.

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. 

Invoiced’s Accounts Receivable Automation Software can help your business accelerate and boost the accuracy of internal operations, promote better communication with and simplify the payment process for your customers, and so much more.

Ready to learn how automated A/R can capture your revenue streams more effectively and timely? Schedule a demo or create a free account today!

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