The importance of cash flow in business is well recognised by academics and practitioners of business and finance alike. Whilst many businesses and entrepreneurs have great business models and ideas, limited attention to cash flows can see poor performance or liquidation.

Cash Flow in Business: Causes of Poor Cash Flow

Over-expansion – One of the key causes of poor cash flow for a business is that of over-expansion at an early stage. Over expansion typically leads to a strain on cash flows as increasing levels of short term debt are incurred, before sales have had a chance to convert into cash.

Poor Debtor Management – A failure to manage credit sales can often lead to poor cash flows. Overly generous trade credit terms and a failure to chase up debtors can all lead to a lack of liquidity within a business.