Surefire Ways to Lose Cash Flow: What not to do

February 15, 2012

The pressure of watching cash flow can stress out anyone. Yet, business owners must do it to ensure they can pay employees, vendors and company expenses. Even a profitable business that doesn't have cash flow under control face trouble that could go as far as bankruptcy.

We often talk about what you need to do keep your cash flow balanced to avoid having more cash going out than coming in your business.

Let's change it up and look at ways a business can run out of cash fast:

  • Ignore outstanding invoices. Why spend hours chasing down unpaid invoices? Owners can instead focus on growing the business and keeping customers happy. Then there won't be any business to manage or customers to service when customers don't pay their invoices within a set timeframe.
  • Delay sending invoices. Owners have too many things to do, so waiting a couple of weeks to send invoices won't hurt anything. Then the owner won't have the money to pay the credit card bill and vendor invoice that's due in one week. Holding off to pay the credit card until customers pay up means paying interest -- which won't happen when invoicing customers as soon as possible and they pay on time. .
  • Require payment in full. An owner would rather have the client pay for everything late rather than requiring half up front and half upon delivery of the product or service. Who wants to mess with tracking multiple payments? Waiting longer for full payment won't pay your rent or expenses.
  • Accept checks only. Offering a credit card option just puts more money in the credit card company's pockets as they charge fees for transactions. It's better to receive a check weeks late than pay that darn fee and get the money faster, right?
  • Snub complementary businesses. It's too much work to maintain these relationships and they'll get in the way of work. Building a strong relationship could lead to more work because they might refer their customers.
  • Go after every industry and business. Targeting far and wide is more likely to bring in more business than going narrow and deep. Doesn't everyone need oilfield parts?
  • Don't look into financing. It's hard for a business to grow even with balanced cash flow because it usually requires investing more into resources, inventory and staffing. Financing involves paying more than the borrowed amount, so it's better to hope and pray that there's enough cash to make payments.
  • Accept the first approved loan. Low on cash after all these activities? A loan will fix that. It's hard enough to get a line of credit from a bank especially for those that provide services. Therefore, the best thing to do is take the first loan offered regardless of collateral requirements, interest rates and other requirements. It also saves a lot of time to take the first one instead of waiting on others with lower rates to come through.

If you don't have a bookkeeper or accountant on staff, hire one on a contract basis. They can help you create a cash flow statement to make it easier to manage cash flow and stave off future cash flow problems.

Owners also have more financing options available that don't require paying anything back. Invoice financing is one such possibility. This financing also helps reduce the time spent chasing down payments.

What other activities eat up cash flow? How can companies better manage cash flow?