Cash Flow Challenges? Here's How to Ensure Seamless Cashflow

Tally Solutions | Updated on: April 19, 2023

5 common causes of cash flow problems
How to solve cash flow problems

Cash flow problems can cripple your business, so keeping tabs on the causes, preventing those situations, and remedying them when they occur can help your business stay afloat even during testing times.

5 common causes of cash flow problems

Lack of capital

Capital is the lifeblood of any business. When you don’t have sufficient capital, you cannot meet your daily business requirements, as it causes cash flow problems. You can take loans, but they must be returned with added interest. You can use your personal savings and inject them into your business, but it causes stress and puts a dent in your personal savings if the cash cannot be recovered quickly. A lack of capital is one of the main causes of issues with cash flowing in and out of your business.

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Decreasing sales or profit levels

It takes time for small businesses to generate profits. A study found that it takes most businesses up to 4 years to generate profits. When you are starting out, the profit levels are likely to be low which can cause a cash crunch. Profit levels can also decrease due to more competition, price wars, changing economic conditions, and increase in operating costs. Similarly, if you are experiencing lower sales due to seasonal dips, it directly causes the circulating cash to decrease substantially as a lower number of customers are buying from you.

Too much or too little inventory

Your inability to manage your inventory can lead to cash flow problems. When you overstock, you have tied up cash as the stock sitting in your warehouse is not generating profits and sales. If you have an understock situation where the supply is not meeting the demand, you will experience cash flow issues because you are losing out on your potential ability to generate profits and improve sales.

Outstanding invoices/receivables

Outstanding receivables refer to the cash which is yet to be paid by your customers and clients. This causes cash flow problems because even though you provided the product or service, the payment is made late.

Inaccurate forecasting or bookkeeping practices

Your inability to accurately forecast your future spending impacts cash flow. For example, if you do not have a budget, you will have no idea where your business can go and so you are completely unprepared for any problems that can arise. Additionally, in case your books of accounts are inaccurate, discrepancies and errors abound which means inaccurate data, leading to cash flow challenges.

How to solve cash flow problems

Create a short-term business survival plan

Even with meticulous planning, things can go awry, and you should be prepared for those times as best as you can. You should create a cash reserve for emergencies.

One tactic to improve cash flow is to create a budget. If you are a small business that has been running for a year or more, you have an idea of the average spending. Based on factors such as season and customer demand, allocate a monthly budget so you are prepared well in advance, and your operations align with your business goals. This will save you in the short term as you will be more aware of where you are spending and how you can make changes for every operation to go smoothly without going out of business.

Reduce expenses

Many business owners make the mistake of cutting down on the core operations and suffering due to it in the long run. Instead, see where the recurring yet small expenses are taking place and how they can be reduced, which eats up your cash every month. Look at the places where you are overspending, such as housekeeping, and cut in such areas that don’t directly impact your business operations. This requires a thorough look into all expenses, but it is worth your time as it can considerably improve the cash flow of your business.

Speed up accounts receivable

Invoicing instantly is the best way to ensure you get timely payments from your clients. If you delay the invoicing process, your clients will delay their payments which blocks the cash flow. When a transaction has occurred, make sure you raise an invoice promptly. You should also offer incentives so every customer wants to pay timely. You can do this by offering discounts on their next purchase if they pay timely this time. Or perhaps you can give them the type of incentive that works for them the best. This way, you will receive your payments on time, and your operations can run well.

Keeping tabs on who owes you, the last date of payment, and their payment history is vital to understanding accounts receivables so further action can be taken if required. TallyPrime makes it easy to generate an outstanding receivables report where you know these details and can follow up if they still do not pay on time.

Keep track of key financial reports

Financial reports are used to forecast, plan, and execute your plans so your business thrives in the short and long term. They can be used to understand what is currently happening in your business and give you an idea of where your business is headed if all the factors remain the same. TallyPrime generates more than 400 reports, and you can generate general reports and comprehensive reports depending on the level of detail you want. Financial reports can help you stay on track as it reveals opportunities, threats, and trends you may have missed otherwise.

Let us take the example of inventory reports. You need to maintain the right inventory if you want to maintain an impressive cash flow. But doing so manually is time-consuming. Generating different inventory reports with TallyPrime instead can help as you get insights instantly. You can see how much stock is available, how much stock is needed as per the demand projections, and which stock must be sold quickly because its expiration date is close. These valuable insights help you plan your sales accordingly for better cash flow.

Optimize credit & cash flow management

Cash flow management is crucial, and TallyPrime provides ways to do so with ease. The cash flow projection feature enables you to understand the expected inflow and outflow of cash during a particular period. This lets you invest wisely and make informed decisions that are for the betterment of your business. With its multiple bill settlement feature, you can make bulk payments, thereby saving you from paying extra interest later on. It also clears up unpaid bills, which can cause trouble later on as they keep piling up, making it difficult for you to pay them back.

TallyPrime offers credit management as you can allocate credit based on how credible every customer is rather than allocate the same credit for every customer. This customization enables you to have better control over your credit and to ensure smooth cash flow. It has an alerting mechanism that lets you know if a customer has unpaid bills that require your attention so you can do the needful. You can send reminders and alerts to your customers so they remember to pay you on time. These management features ensure you are getting paid on time and the cash flow is maintained well.

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