Cash flow challenges: Root causes and consequences

Read Time: 3 Min
Maintaining good cash flow is key to keeping a business afloat and profitable. In fact, 82% of business failures in 2019 were due to poor cash management.
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Most business owners likely recognize the importance of cash flow; however, they may not be aware of the primary causes of cash flow problems and how significantly these issues can impact their business operations.

Root causes

Of all the primary reasons why businesses struggle with cash flow, one of the most cited is problems with late payments.

  • An average of 35% of customers of surveyed businesses are paying later than the agreed-upon terms. Even more concerning is the fact that the problem seems to be increasing.
  • Roughly 43% of surveyed businesses said late payments were more of a problem in Q1 2021 than in the previous quarter.

Potential consequences

Insufficient cash flow can disrupt business operations in many ways, including§:

  • Restricting business growth
  • Eliminating opportunities to take on new projects
  • Interfering with resources necessary to hire or invest in capital projects
  • Difficulty retaining employees due to inability to offer raises or competitive benefits
  • Delaying tax payments
63% of surveyed small business owners reported not knowing exactly how much cash comes into their businesses each month§.

Suggested action steps

There are many effective steps a small business owner can take to help strengthen cash flow:

  • Gaining a good understanding of major expenses and revenue
  • Creating a cash flow budget and calendar to accurately assess the company’s financial health at any given point
  • Automating payment processes to help eliminate cost, time, and potential fraud associated with manual check processing

Taking the first step

As you explore options for improving your company’s cash flow, Huntington can help. Connect with our business banking team to leverage our effective, tested resources that can help you to avoid common cash flow problems and enhance your ability to grow your business.

Related Content

† Guta, Michael. 82% of Business Failure is Due to Poor Cash Management. Small Business Trends. October 14, 2019.

‡ Anderson, Doug. 2021. As Trade Volumes Increase, Survey Indicates U.S. Suppliers Are Cautiously Optimistic. Tradeshift. Accessed July 2021.

§ Small business payments and cash flow in 2021: How to manage money in the post-pandemic economy. Intuit. May 27, 2021.

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