Cash Flow Issues: Four Causes And One Solution

Businesses of all sizes across every industry experience cash flow issues at one time or another. While the reasons for cash flow issues are not always the same, there is an easy solution to not only correct them, but prevent them from happening in the future.

Startup Expenses Cause Cash Flow Issues

Startup expenses for any business are usually on the heavy side. Business owners need to secure facilities, acquire equipment, hire staff, run marketing campaigns, purchase supplies, and more. The expenses can turn cash flow upside down before sales pick up and the business is running at a surplus. Cash flow issues incurred from startup expenses can go on for months after a business launches.

Cash Flow Issues Cause By Growing Pains

When a business is in the process of growing, cash flow often experiences a strain. Rolling out new products, research and development, testing new markets, or launching new locations all take money from existing capital reserves. This can even result in taking out additional loans to keep operations afloat during expansion.

Speaking Of Loans

Existing debt certainly restricts cash flow. Setting aside a portion of revenue each month to make payments on one or more loans can cause severe cash flow issues, especially is sales are less than optimal. When there is a problem with your cash flow, you may find yourself unable to meet payroll or regular expenses, even though the bank waits for no one when it comes to loan payments.

Outstanding Accounts Receivable

Of all the causes for cash flow issues, outstanding receivables is probably the most common. Any business that issues invoices with staggered payment schedules of 30 days or longer is bound to experience some lag in revenue. While businesses wait for customers to make payments, there are still expenses which need to be met, and those can frequently place a strain on cash flow, or cause it to invert completely.

Fixing And Preventing Cash Flow Issues

Perhaps the easiest way to correct and prevent cash flow issues is by incorporating invoice factoring into your strategy for accounts receivable. Invoice factoring converts outstanding receivables to cash, usually within 24 hours. This method keeps businesses on top of their accounting, while maximizing cash flow. Businesses can start accumulating growth capital, reducing existing debt, and meet overhead expenses without having to wait for customers to remit payment.

At FSW Funding, we specialize in working capital solutions structured around accounts receivable. If you want to improve your current cash flow, or prevent cash flow issues from arising down the road, contact our offices.