5 Signs Your Company Is Facing Cash Flow Problems

glasses, pen and calculator on a document of financial figures

If a company is facing cash flow problems this means that they are struggling to raise the necessary cash to pay their liabilities as they fall due. If left to escalate, cash flow problems can cause a business to become insolvent. Whilst there are many different reasons that a business may face cash flow problems, being able to identify the main signs could well save your company from spiralling into serious financial distress. Below are just a few of the main signs to look out for. 

Difficulty Paying Bills On Time

One of the biggest indicators that a business is struggling with cash flow problems is if they are struggling to pay their liabilities as and when they fall due. If you’ve noticed invoices piling up or late payment notices starting to emerge then it’s time to tackle your business’ financial difficulties head on. It’s important to assess whether or not your company has become insolvent, and seek the necessary professional guidance of a licensed insolvency practitioner. In the case of cash flow insolvency, you may be asset rich but cash poor meaning you lack the necessary liquidity to pay your bills.

Excessive Stock Levels

Man with a calculator doing accountancy workIf you’ve noticed that you’re being left with excessive amounts of stock then this is another key sign of cash flow problems. Having excess stock suggests that you are wasting capital that could be used more urgently elsewhere in the business, such as to pay wages. It also suggests that sales are lower than usual and consequently that business performance is decreasing. Managing your stock levels more accurately will help to prevent over ordering stock and help you to save capital. 


When a business expands too quickly without the necessary financial resources to support this expansion, this is known as overtrading. Classic signs that a company is overtrading are likely to include persistent use of their bank overdraft and a very low inventory turnover ratio. If a company is overtrading this means that they are not managing their cash flow sensibly and are likely to be facing issues with their working capital. 

Lack Of Cash Buffer

piggy bank toppling over with coins falling outIn any company, it’s always important to have a cash buffer to act as a financial safety net for your business. Cash flow problems occur when your cash flow is not managed properly meaning that you don’t have a financial buffer for periods when cash income is slow. You can calculate how much of a buffer your business needs by dividing your cash balances by your cash outflows. 

Disorganised Financial Records 

Keeping accurate financial records is essential for monitoring the financial health of your business and keeping an eye out for any potential cash flow problems. Maintaining accurate records of cash flow will allow you to budget accordingly and predict surges and decline in cash flow. One of the main causes of cash flow problems is inaccurate record keeping and so it’s essential to keep on top of this.

How Do I Respond To Cash Flow Problems?

If your company is facing cash flow problems then there is a high chance that it is insolvent. Seeking professional insolvency advice at the first signs of any cash flow problems is essential for providing your business with more options for moving forward. A licensed insolvency practitioner will be able to confirm whether or not your business is in fact insolvent, and advise on a rescue plan or liquidation route accordingly. 

If your company is struggling with cash flow problems, don’t hesitate to get in touch with our experienced team of insolvency practitioners today.

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