Cash flow challenges: Root causes and consequences
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†.
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.
† 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.
The information provided in this document is intended solely for general informational purposes and is provided with the understanding that neither Huntington, its affiliates nor any other party is engaging in rendering financial, legal, technical or other professional advice or services, or endorsing any third-party product or service. Any use of this information should be done only in consultation with a qualified and licensed professional who can take into account all relevant factors and desired outcomes in the context of the facts surrounding your particular circumstances. The information in this document was developed with reasonable care and attention. However, it is possible that some of the information is incomplete, incorrect, or inapplicable to particular circumstances or conditions. NEITHER HUNTINGTON NOR ITS AFFILIATES SHALL HAVE LIABILITY FOR ANY DAMAGES, LOSSES, COSTS OR EXPENSES (DIRECT, CONSEQUENTIAL, SPECIAL, INDIRECT OR OTHERWISE) RESULTING FROM USING, RELYING ON OR ACTING UPON INFORMATION IN THIS DOCUMENT EVEN IF HUNTINGTON AND/OR ITS AFFILIATES HAVE BEEN ADVISED OF OR FORESEEN THE POSSIBILITY OF SUCH DAMAGES, LOSSES, COSTS OR EXPENSES.
Third-party product, service and business names are trademarks/service marks of their respective owners.
