Corporate Cash Flow: 7 Simple Ways to Solve Cash Flow Problems

What are cash flow problems?

Cash flow problems occur when a company does not have enough cash on hand to meet its financial obligations. This can happen for a number of reasons, including poor sales, high inventory levels, unexpected expenses, or too much debt. Cash flow problems can quickly become a major issue for any business, as they can lead to late payments, default on loans, and even bankruptcy.

Start smart

There are a few things you can do to avoid cash flow problems in your business. First, make sure you always know how much cash you have on hand. Until you understand how to manage business cash flow, you can’t improve it. This may seem like an obvious step, but it’s important to keep track of your cash so that you can identify issues and understand their severity.

Accurate cash flow forecasting is essential to keeping your business on track. With a solid foundation and some careful planning, you can avoid cash flow problems and keep your business running smoothly. But, as the old adage says “garbage in, garbage out.” Before you explore cash flow solutions, you must first begin with an accurate baseline. Start by confirming your current balance information is accurate and you’ll be kicking off the right way.

Next, have a clear and complete picture of your projected inflows and outflows. This way, you can better coordinate your outflow timings with your projected inflows, and maximize your cash efficiency. This allows you to limit your external borrowing, and where applicable, maximize your return on investments.

Until these two baseline needs are satisfied, you can’t accurately identify if a cash flow problem exists, and/or how serious it may be.

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How to solve a cash flow problem

“How do I fix my cash flow problems?” is a common question. Solving cash flow problems involves playing the game on both sides. Not taking into account soft costs like vendor relationships, for payables, in most cases the optimal approach is to wait to make payment until the due date of an invoice, or in the case of a discounted invoice, the last day of the discount period. This allows me to limit the duration of borrowing or gain valuable days of interest investing. If taking this tactic, reliable payment methods are key to ensure due dates are still met while maximizing float.

Identify the problem before proposing the receivable solution and path forward. Is less cash sooner or more cash more apt to solve the problem? With this answer, we implement payment terms to incentivize early payment with discounts or create terms that make it more apt for customers to pay full invoiced amounts with less favorable discount terms or none at all.

Cash flow problems and solutions

If creative approaches to fixing the cash flow problem doesn’t resolve the concern, your organization needs to focus on creating free cash flow.   This means generating more cash than what’s going out the door. To achieve this, you have to either increase revenue or decrease expenditures. Or, seek temporary relief via Treasury.

Read on for some cash flow tips.

Ways to increase revenue

• Increase prices: This is easy to dismiss as the obvious answer, but inflation combined with supply chain issues can make this not only the obvious, but the correct choice. When increasing prices, choose carefully your first products where key competitive advantages exist and test adjustments on a small scale before rolling out broadly.

• Increase sales: More customers is often an expensive endeavor, but more often more sales can often be achieved by leveraging your existing customer base to it’s fullest and offer them improved or additional products to increase average sales per customer and significantly improving revenue generation.

• Increase collections: Moving the needle slightly here has a large impact on cash flow. Offering additional payment types like credit cards enables customers with their own cash flow problems, in many cases small businesses trying to manage cashflow, additional ways to make payments before moving to collections or bad debt.

Ways to decrease expenditures/costs

• Administrative costs including eliminating personnel and other non-critical programs.

• Competitively bid providers of raw materials and other key inputs to ensure comparable quality can’t be achieved at a lesser cost.

• More efficiently manage inventory and other carrying costs, particularly for businesses where products are quickly replaced with newer models resulting in drastically devalued or worthless inventory being written off.

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Temporary relief

Short term borrowing. Whether in the form of treasury borrowing as part of structured notes or drawing on revolvers, temporary relief can be provided for short term cashflow imbalances.  Other borrowings would include factoring receivables and other programs providing asset backing for borrowing if borrowing conditions are tight.

Evaluating cash flow solutions

There are a few key indicators that will help you understand if a solution is the right fit for your company.

1. How long will it take to compile the data needed for the projections? If it takes more than a couple of minutes, or if it’s difficult to obtain the data, the solution is may not be the right fit.
2. If you want to refresh the data, what is the effort?
3. Are actuals matched against projected flows to update the forecast?
4. Does the timing of the actual balance match the timing on the projected flows? Any difference results in duplication and inaccuracy.