Cash Flow Problems, and How to Tell Which One You Have

Five problems, and how to tell them apart.

1. A timing problem

You are profitable, customers pay eventually, and the money arrives after it is needed.

The test: build a 13-week forecast. If the balance dips and then recovers without any change in trading, it is timing.

The fix is invoicing faster, chasing earlier, and where necessary a facility sized to the dip. Not cost cutting.

2. A growth problem

You are growing and it is consuming cash. You pay for staff, stock and delivery before customers pay you, so every new job makes the hole deeper.

The test: is the shortfall increasing in the months your revenue increases? If growth and the gap move together, this is it.

The fix is funding, deposits, or slowing down. Cutting costs here damages the growth that will eventually resolve it.

3. A margin problem

You are busy, everything is collected, and there is still nothing left.

The test: take your last three months. Revenue, minus direct costs, minus overheads. If that number is near zero or negative while you are working flat out, you are selling at the wrong price.

No amount of collection improvement fixes this. Nothing you do to your debtor days changes a negative margin.

4. A concentration problem

One customer is most of your revenue, and your cash position is really their payment behaviour.

The test: what percentage of your revenue is your largest customer? Above about 30% you do not have a cash flow position, you have a dependency.

The fix is diversification, which is slow, and shorter terms with that customer in the meantime.

5. A leakage problem

Money is going out and nobody can account for all of it.

The test: list every payment over a threshold for one month and ask what each one bought. Subscriptions nobody cancelled, duplicate payments, services at rates agreed years ago, and occasionally something worse.

The fix is a review of supplier payments, and it usually pays for itself.

Why the diagnosis matters

The instinct in every case is to cut costs. That is right for one of the five.

Cutting costs in a growth problem starves the growth. In a margin problem it delays the pricing conversation you actually need. In a concentration problem it does nothing at all.

The test that covers all five in an afternoon

Three columns for the last six months. Revenue, cash collected, cash paid out.

Revenue rising and collection flat is a timing or concentration problem. Revenue and payments rising together with nothing left is growth or margin. Payments rising without revenue rising is leakage.

That narrows it to two, and the individual tests above separate them.

What not to do while you work it out

Do not delay VAT or Corporate Tax payments. That converts a cash problem into a compliance problem with a federal authority, and the second is harder to fix.

Do not borrow in a panic. Facilities arranged under pressure cost more, on worse terms, and lenders notice.

Where we fit

Send us six months of management accounts and your debtor listing. The diagnosis takes us an afternoon and it decides everything you do next.