Cash flow is an integral part of smooth business operation. Without it, your business can be hamstrung – unable to deploy capital, restock products, or pursue growth. But there are a whole host of potential cash flow problems just waiting to cause issues. Here’s everything you need to know about them.

September 08, 2021
By Taulia
By Taulia

82% of businesses fail because of cash flow problems. But even the businesses who don’t fail still have to face them in one form or another. How can your business prepare for the inevitable issues with cash flow it’s bound to face at some point in its future?

The best solution to cash flow problems is two-fold – understand what the potential risks are and implement technological tools to help you pre-empt them. We’re here to guide you through what the most common cash flow problems are, what kinds of damage they can cause, and how you can solve them with an effective cash forecasting solution.

What is a cash flow problem?

In essence, a cash flow problem can be defined as a situation where total debt exceeds total revenue in a given time period, resulting in a net negative flow of cash into the business. These problems are incredibly damaging to business operations, as negative cash flow makes it much more difficult to deploy capital or invest in growth. In the worst case, cash flow problems can lead to insolvency – the inability to pay creditors in line with established payment terms.

There is a wide range of reasons why cash flow problems can arise, and understanding what they are is a key component in being able to deal with them. These are some of the most common cash flow problems to stay aware of:

Late payments

Making sales is great, but if it’s not backed up with the customers paying on time, you’ve got problems – and there are many potential causes of late payments. Collecting your trade receivables too slowly can seriously inhibit your cash flow opportunities, stifling growth and potentially causing you problems with paying your own bills.

Poor inventory management

Inventory management is a fine balancing act – not enough inventory and you run the risk of being unable to fulfill customer orders but too much and you are inefficiently deploying capital. Particularly poor inventory management in the form of owning too much stock can lead to cash flow problems if you have too much capital tied up and not enough to cover your costs.

Unexpected expenses

Expenses, especially when they’re unexpected, can also cause significant cash flow issues. If a key piece of equipment breaks in a month when you’re already struggling to make ends meet, for instance, you might find yourself in a position where you’re forced to stop production while you raise capital.

Poor financial planning

Without proper financial planning in the form of a cash flow forecast outlining expected income versus expected expenses for a set time period, you’re in the dark as to what lies beyond the horizon for your cash flow. An accurate cash flow forecast will help you to spot potential problems before they arise.

Personnel changes

Finally, staff costs can also contribute towards cash flow problems, especially in situations where your business is growing rapidly. If you land a new client with large requirements, for example, you might be required to make new hires to meet demand. However, if you don’t have the cash to pay them when it comes to the end of the month, you’ll find yourself in need of credit.

Solutions to cash flow problems

So, how can businesses prepare for the negative cash flow situations outlined above and manage their capital more effectively? Understanding the problems is the best first step, but understanding alone doesn’t help solve the problems themselves. Technology solutions such as Taulia’s Cash Forecasting, however, can be deployed to enable more effective cash flow management using a combination of real-time data and analytics to enable better accuracy, visibility, and financial intelligence.

Cash flow forecasting defined

Cash flow forecasting is a way of estimating the flow of cash coming in and out of your business, across all areas, over a given period of time. A cash flow forecast shows your projected cash based on income and expenses and is an important tool when it comes to making decisions about activities such as funding, capital expenditure, and investments.

Cash forecasting is the number one priority for treasurers, as their job and core responsibility is to have complete control, management, and oversight of the finances within a company. It’s extremely important for a treasurer to have accurate, real-time data and forecasts so that they can make the right decisions for their company and avoid any financial turmoil.

The power of cash flow forecasting software

Taulia’s Cash Forecasting solution, powered by machine learning, provides treasurers with a holistic view of their financial apparatus. There are many benefits to having a technology-driven cash forecasting solution in place, from reducing the need for manual data entry and spreadsheets to having a better and more holistic understanding of short-term, medium-term, and long-term forecasting. Some benefits of technology-driven forecasting include:

  1. Better data-driven decision-making: Treasurers can more accurately keep track of all finances within a company when they have the tools of digital treasury management at their disposal. From employee expenses to payroll and rent, they can quickly locate, view, and analyze important data that will enable them to make informed decisions about the business. With the right information, treasurers can optimize their working capital, while avoiding negative financial situations.
  2. Reduce manual processing and data entry: Compiling complex financial data (manually, especially) can be time-consuming, costly, and can be prone to critical human error. As the world continues to work remotely and use less paper overall, it can be quite difficult for a treasury team to continue using paper financial data and keep track of it accordingly. Having all financial data located in one place will ensure that the business has a full overview of their company’s receivables, payables, and financial forecast.
  3. Enhanced, high-level accuracy: Accurately forecasting the cash flow of a business can be an arduous task, as treasurers have to deal with data in different formats, currencies, time zones, and work with multiple stakeholders and teams. As businesses operate in hyper-complex and fast environments, it can be difficult to accurately gather the right information and predict forecasts. With Taulia’s Cash Forecasting solution, treasurers can get up-to-date information in real-time, anytime, and anywhere, enabling them to predict future financial situations and keep all stakeholders informed.
  4. Growth and innovation: A company that can accurately forecast its cash, can make plans for its future growth by investing in the right resources, tools, and developments. When a company can accurately track their cash flow, they can decide when and how they are going to invest in new technologies, research, and development, and perhaps expand into new markets. With higher accuracy and control, companies can make powerful decisions that can put them in a better position to grow, expand, and meet their objectives.

Avoid cash flow problems with Taulia

Technology-driven, cash forecasting solutions are a gamechanger for treasurers and anyone who is looking to make better use of their liquidity while spending significantly less time on manual data collection and entry. To learn how we can help you make better decisions for your business, learn more about Taulia Cash Forecasting or get in touch with us today.