Here Is What Happens to Your Business with Poor Cash Flow

Detrimental Effects of Poor Cash Flow

Regardless of the type of business, poor cash flow is a common financial problem faced by businesses. Under these circumstances, cash flow is not enough to support everyday business activities.

Several different factors can result in reduced cash flow. Contrary to popular belief, faltering sales is not the only reason behind poor cash flow. It can also be caused due to excessive credit sales. The cash flow problem can aggravate if your customers do not pay on time. Obsolete or slow-moving inventory is another cause of poor cash flow.

No matter what the reason may be, it is imperative to improve the cash flow of your business. After all, poor cash flow can lead to several problems, which include the following:

Diminished Growth

According to a 2016 survey, 53 percent of UK’s SMEs considered poor cash flow as the biggest hindrance to their expansion. This is not at all surprising since poor cash flow can obstruct key business processes. Growth is impossible if you do not have enough cash for meeting your daily expenses.

Slow Payments to Suppliers

With poor cash flow, you will be unable to make payments in time to your suppliers. This factor alone is enough to damage your reputation and erode suppliers’ trust. Since business is built on trust, customers and other enterprises may also hesitate to do business with you.

Poor cash flow can also negatively impact an entity’s ability to carry out its obligations on time.  

Problems with Paying down Debt

Poor cash flow can impede your ability to pay back your loans in a timely manner. As a result, this can reduce your credit rating. You may be unable to get credit in the future. Even if you do get credit, the interest rate may be high.

If you are unable to pay your debt, you can face lawsuits and you may even be forced to declare bankruptcy.

Inability to Purchase New Inventory

You won’t have enough cash to buy new inventory. Without inventory, you cannot earn revenue. You will be unable to meet the demands of your customers and they will start looking elsewhere. As a result, you can start losing your customers.

Unpaid Salaries

Paying your staff monthly salaries may become increasingly difficult with poor cash flow. The inability of a business owner to pay salaries to employees indicates a dire scenario.

Employees don’t like getting late salaries and they don’t want to suffer from unpaid salaries. If they remain unpaid for too long, employees may start applying for jobs elsewhere and quit working for a business.

Lost Contracts

You may end up losing contracts if you make late payments or are unable to pay your suppliers.

Poor cash flow presents many serious risks for your business. As an ally of small businesses, we help our clients address their cash flow problems through a number of finance options.

Contact us today for more information.

KLB Business Funding

3702 Pratt Avenue Bronx NY 10466

(347) 755-2257

info@klbbusinessfunding.com