Common reasons why firms have cash flow problems

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Every business needs cash flow in order to move forward, whereas cash flow problems can lead to liquidity problems. But what are the most common reasons that see businesses have cash flow problems?

One of the biggest reasons is when a company has been commissioned to deliver a product or service for a client, completes the work out of its own pocket and then has to wait for the client to pay the invoice.

Another common problem that businesses face is not tracking their business results properly. For instance, they may need to look at their inventory management, supply ordering and procurement to help reduce attrition of cash flow and improve how quickly the money comes in.

Likewise, as most cash flow problems stem from delays in payment and slow turnaround of money owed, there may be other parts of the business that can be quickened. For instance, are products being turned around as quick as possible? What about delivery? All these things could see cash come in quicker.

When a client fails to pay an invoice, the company that has spent money doing the work, may be subsequently out of pocket. The best way to avoid this is to do due diligence on clients before agreeing to do the work. While that may be difficult when you are desperate for work, it could save you a lot of hassle and financial problems further down the line.

One of the simplest reasons why cash flow can be bad is because companies allow their clients to pay by cheque, rather than credit card or electronic transfer. This means, days are lost, both in the sending of the cheque, paying in and waiting for clearance.

If your company has cash flow problems, then it may be worth seeking advice and support as soon as possible. In particular, you may be able to get more details on invoice discounting and factoring to see if they can help you.

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Source by Rob Berry-Smith

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