7 Signs You’re Heading Toward Cash Flow Issues (and how to solve them)

Here's how to avoid cash flow issues.

Cash flow can make or break a small business. While generating sales is nice, you’ll still be in trouble if you don’t have the money on-hand to pay your employees, vendors and other bills. It’s no wonder that 69% of small business owners reported being kept up at night because they’re worried about cash flow issues, according to a survey from Intuit QuickBooks (slide 2).

The earlier you can start addressing potential cash trouble, the easier it is to find a solution. Here are the top warning signs of cash flow issues small business owners face as well as how you can respond.

1 – Invoices Aren’t Being Paid

Making a sale is often just half the battle. You also need to collect payment on your invoices. If you notice that it’s taking clients longer to pay their bills, that can lead to a serious cash flow squeeze.

When it comes to collecting payment, don’t be shy. Contact clients as soon as their payment is late and keep reminding them until they catch up. The longer they go without paying, the more likely it is they could skip payment altogether. For future sales, you could shorten the payment terms as well, like moving from 30 days down to 15 days or asking for a partial advance on orders.

If you need money now, another solution would be to factor your invoices. You trade your unpaid invoices to a financing company for a cash advance. They are then responsible for collecting payment from your customers. Once they get the payment, they deduct their fee from the proceeds and give your business the rest.

2 – Uncertainty Over Future Income and Expenses

If you aren’t sure what the next few months will look like for your business, that could be setting the stage for the cash flow issues small business owners face. While uncertainty itself doesn’t create the financial trouble, it gets rid of your ability to plan so when trouble does come your way, you’re caught off-guard. For example, you have no idea whether a major client will renew in 3 months. Or that your monthly expenses are slowly creeping up without you noticing.

Take some time to forecast your future cash flow, revenues and expenses over the next six months to a year. Even if your estimates are off, just spending some time thinking about the future can help you catch problems earlier, like you can start cutting back expenses now just in-case that large client doesn’t renew. It’s better to overprepare than underprepare.

3 – Having Trouble Meeting Payment Deadlines

You need cash to cover major expenses during the year like payroll, taxes and your lease. If you find yourself missing these deadlines, that can lead to serious trouble. Not only could you face penalties and fines, like from the IRS, it can also turn into even worse problems like a key employee quits or your top vendor stops accepting your orders.

In the short-run, consider borrowing to cover these expenses. It would cost your business a lot more to replace your star employees and repair your reputation versus paying interest to take out a business loan. Long-term, keep working on your budgeting and cash flow forecasts so you can better anticipate when these deadlines are coming up and have enough cash for them.

4 – Growing Short-Term Debt

Debt financing can help you grow your business, but you need to find the right balance. If you keep adding more and more short-term debt because you don’t have enough cash to cover your bills, that problem could start to snowball. Not only will you still need to cover your existing business expenses, you’re also adding on the interest and loan payments for your debt.

One way to see whether you’re borrowing too much is by looking at your debt-to-income ratio, your total monthly debt payments divided by your gross monthly income. Ideally, this ratio should be 43% or lower.

If you have too much short-term debt, contact your lender and see if there’s a way to consolidate to a smaller payment or if you can pay off some of the loans ahead of schedule. That’s why when you borrow, it can be useful to work with a lender that doesn’t charge prepayment penalties because then you can get out of debt earlier.

From there, work to bring down your business expenses and speed up your cash flow collections so you can start paying off the debt and bring your ratio back to a more manageable level.

5 – Inventory Starts Piling Up

Inventory piling up is another sign of potential cash flow trouble. Not only are you spending money on unsold inventory, you’re also paying for the storage, security and insurance to protect these goods. If it’s taking you longer to turn over your products, you may need to downgrade your sales forecasts so you buy less inventory or change your business model because client tastes have changed, so they want something else.

You could also use inventory management software to keep track of what’s selling and what needs to be resupplied. It takes out the human error where you mistakenly order too much of certain products and they go unsold.

6 – Missing Vendor Discounts

Some vendors offer discounts when you pay early, like before 30 days. If you take advantage, that can help boost your profit margin by lowering your cost of goods sold. Even a small discount of 5 to 10% can make a difference.

But you need cash to meet these discounts. If you’re unable to qualify for vendor discounts or even worse, you’re getting hit with penalties from paying late, that’s another warning sign. While it’s not as urgent as some of the other problems on this list, it’s still costing your business money.

A business line of credit could be the answer. When you don’t have the cash, you can borrow against your line of credit to pay early and qualify for the vendor discounts. Once your business has money, you can pay off the line of credit and then borrow again in the future. Even after paying interest to borrow, chances are you’ll come ahead by claiming the vendor discounts.

7 – Turning Down Projects/Sales

When businesses are short on fund, they may have no choice but to turn down work because they can’t cover the supplies, staff and other costs. It’s an all too common problem as 52% of small businesses have missed out on sales/projects worth $10,000 or more because of a lack of cash, according to Intuit QuickBooks (slide 2).

This is a clear-cut scenario when borrowing money will grow your business. With a short-term cash flow loan from an alternative lender, you could finance the new project/client, collect your earnings and then pay the loan back as soon as you want, as these lenders do not typically charge an early payment penalty.

If you can prove that you’ve got a sale nearly locked up, you can also use purchase order financing. Under this arrangement, the lender gives you cash to complete the order and collects their fee only after the client pays for the job. You don’t have to take on debt.

Cash flow trouble can sneak up on you and by then, it’s often too late to fix. If you see any of these warning signs, it could be time to make changes and fast. By following this advice, you’ll keep your business cash flow positive no matter what challenges come your way.


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Let’s get you the financing you need to grow your business. Whether you’re looking to expand, purchase equipment, fulfill an order or stabilize your cash flow, we can get you the right type of financing for your needs. If you’re still not sure which type of financing is right for you, you can use our matching tool or give us a call at (800) 780-7133 to speak with one of our financing specialists.

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