Red flags of negative cash flow and when to get help

If you’re running any type of business, negative cash flow does not just happen. There are always red flags of negative cash flow that give you an indication of a problem within your organization.

Negative cash flow can rapidly disrupt a small business’s operations. Many businesses struggle to keep a consistent client base and have slim margins, which means it’s important to keep a close eye on cash flow.

Check out our tips on recognizing the red flags of negative cash flow and when to seek professional resources to correct the situation.

Delayed accounts receivables

This is the first and, by far, the most important red flag your business needs to pay attention to. When payments into your business start to slow down, despite your consistent invoicing, that’s a red flag you cannot ignore. Far too often, especially small businesses let late and unpaid invoices go far too long. Concerned about the damage assertive collection activity may cause that business, many invoice month after month hoping the invoice will be paid soon.

If you see a trend in delayed payments into your small business, you’ll need to take action to get more serious about improving your cash flow.

Accounts payable stacking up

On the other end of the accounting equation, if your payables begin to stack up or you see a trend, paying your own bills late, that’s another red flag that should not be ignored. When you cannot pay the bills of your own small business, it’s either mismanagement of your finances, or it’s a reduction in money coming into your business. You’re either spending money elsewhere, or there’s no money to meet the business’s financial obligations. This can negatively impact your business rapidly so do not ignore it.

Frequent overdrafts or relying on lines of credit

If your business consistently taps into other sources of cash, this is a sign of rapidly declining cash flow. If this is happening to your organization, you are only accumulating more debt, which is certain to have a negative impact on your operations. Soon, creditors will call you to resolve past-due obligations. Using a credit line occasionally is something a business has to do, but if you’re tapping into this month after month, that’s another red flag of a serious problem.

Difficulties meeting payroll

If you miss even one payroll cycle, this is going to be a game changer for your business. Employees must be paid promptly and while the laws certainly fluctuate from state to state, employees not getting paid is an issue you don’t want to have. We will go as far as to say that if your cash flow affects your ability to pay your employees, you may have missed other red flags regarding cash flow. Missing payroll means you need to act quickly to fix this problem.

Too much inventory

Inventory is cash and if you have too much inventory sitting around your business, that is cash just sitting there unavailable to you. If you’re a small business has inventory, such as many of our landscaping clients, veterinarian practices and other small businesses, it’s important for you to fine tune how you order inventory to ensure you do not have too much sitting around. Sure it’s great to be prepared, but unless you’re getting a massive deal on the products your business uses, streamlining inventory is a great way to preserve your cash flow when you need it most.

Indications it’s time to utilize the services of a collection agency

Once you are aware of the red flags of negative cash flow and downward trends, it’s important for you to get much more assertive with your efforts to improve your cash flow. For many small businesses, that’s using the right collection agency.

How do you know when it’s time to bring in a debt collection agency?

Your receivables are aging beyond 90 days

If you see a trend in customers going over the 90-day mark with their payments, that’s a clear sign you need professionals working those overdue accounts. One fact about overdue invoices is once they go past three months, they become more difficult to collect on. And if the balance on your receivables continues to grow, that’s a clear sign you have a negative trend. That’s when professionally trained debt collectors can become a vital resource for your small business.

Repeat late paying customers

Are the same customers constantly paying you late? Do you have to get on the phone with the same customers all the time and ask for payment? If those customers are consistently nonresponsive after your attempts to get them to pay, using a collection agency can add some authority and urgency to your bill.

Straining your internal staff with collections

If your internal staff is spending too much time trying to get your customers current on their invoices, utilizing a collection agency can dramatically free up those internal resources. Working closely with the right collection agency is a wise investment but freeing up your internal resources can be a game changer.

Low recovery rates

If the recovery rates of those internal resources are low, that’s an indication you need to bring in professionally trained debt collectors. When you find the right collection agency, they will implement diplomacy and tactful communications to resolve those financial issues on your behalf. Professionally trained collectors are also trained in how to communicate with consumers who have fallen behind. Using the right collection agency will boost your recovery rates dramatically.

Two strong pieces of advice for any business that may have a challenging cash flow situation.

One, never ignore the red flags of negative cash flow.

Two, get the professional resources you need to preserve positive cash flow.