Cash flow problems: causes, solutions, and how Agicap empowers finance teams in mid-sized firms

Recent studies show that nearly half of US small and mid-sized businesses are experiencing cash flow pressures, and a majority anticipate that expenses will continue to rise.

What are the causes behind these cash-flow pressures? Find out and also discover actionable solutions and why unifying your financial controls is the key to transforming cash flow chaos into Treasury Excellence.

What is cash flow?

Cash flow refers to the net movement of money in and out of a business over a set period—typically measured by tracking all incoming payments (sales, loans, investments) and outgoing expenses (supplier invoices, payroll, taxes). Positive cash flow means more money is coming in than going out, and vice versa. For US mid-market companies, effective cash flow management is key to maintaining liquidity, supporting growth, and avoiding financial distress.

What are cash flow problems?

Simply spoken, a cash flow issue occurs when a business has insufficient liquid cash to cover its immediate outgoings or short-term liabilities such as payroll, supplier invoices and rent. It’s a well-known fallacy that happens when cash outflows are greater than cash inflows over a specific period, and even a highly profitable company can face a cash crunch, often because its revenue is tied up in unpaid invoices while expenses tend to be due immediately.

As an example, consider a diversified multi-entity manufacturing group. The company just secured a massive new order, the profit margins are healthy, and the business is stable and growing. However, the new client’s payment terms are 90 days. 

In the meantime, the group must finance all working capital, including raw materials, labour and other operating expenses upfront. Due to the size of the order, there is increased overtime for its staff across subsidiaries, and the business is also settling its quarterly VAT bill. Suddenly, despite the new order backlog and a positive sales outlook, the group struggles to find the cash for payroll. It is a classic, and all too common, cash flow problem.

Common causes of cash flow problems in US businesses

Cash flow issues rarely stem from a single source. They are often the result of interconnected internal and external pressures.

Internal drivers

Causes within a company are often manageable and can be prevented and typically include:

Poor cash flow forecast and lack of real-time data

Depending on the typical spreadsheet for cash predictions spells trouble. Without an instant glimpse of your cash position across all accounts and group entities, your forecasts rest on guesswork, leaving you blind to upcoming shortfalls.

Ineffective accounts receivable (AR) management

Recent surveys show that millions of US businesses face delayed payments from customers, putting significant strain on cash flow and day-to-day operations. Chasing such late receivables manually consumes time that your finance team could instead spend on strategic initiatives.

High overheads and operational costs

Costs can quickly balloon without careful watching. Rent, memberships, and vendor prices can increase spending, especially when prices climb in an inflationary environment. Without clear sight, it's hard to pinpoint where exactly you can trim such expenses.

Disconnected bank accounts and entities

With a lack of a single, consolidated view of group-wide cash balances and cash-flows it is nearly impossible to get an accurate picture of your true liquidity.

Poor inventory management

Stock is cash tied up on a shelf. Excess inventory drains your working capital, while insufficient stock means you can’t meet customer demand, leading to lost sales.

External factors

Much more difficult to forecast and manage are external factors such as:

Late client payments

According to recent surveys, the vast majority of US businesses experience late payments.

Economic volatility

Climbing interest rates and inflation are putting direct pressure on US businesses. Recent surveys show that a majority of small and mid-sized American companies expect their expenses to rise, with nearly half already experiencing cash flow challenges.

Seasonal fluctuations

For many trades like retail and restaurants, demand fluctuates year-round. Not preparing for slow periods can cause dire cash gaps, which can be cahnllening even if the business is highly profitable during its peak season.

The detrimental effects of cash flow problems

When cash flow issues go unwatched, they bring big dangers and limit what you can achieve as a business. They trap finance teams in needless emergency fixes and pull attention away from important strategic decision-making, leading to: 

Missed growth opportunities

You can't invest in new equipment, hire key talent, or expand into new markets if you don't have the available capital.

Damaged supplier relationships

Paying suppliers late can harm your reputation and lead to less favourable terms in the future.

Increased financing costs

Relying on emergency overdrafts or loans to cover shortfalls comes with high interest rates that further eat into your profits.

Team burnout

Your finance team gets swamped with repetitive manual jobs like tracking down payments and merging sheets, which affects morale and job satisfaction. A survey showed that an one-fifth (22%) of finance leaders said cash-flow troubles had harmed their mental wellbeing.

How Agicap helps to achieve Treasury Excellence 

Ecophyse , a €32M+ revenue services company, leveraged Agicap's consolidated view to move from manual, high-effort Excel reporting to strategic cash management , which allowed them to overhaul their investment strategy for cash surpluses and build optimal cash reserves to weather market fluctuations :

" We previously managed our cash flow by connecting to different portals of our banks and then centralised and consolidated everything through an Excel file manually. Thanks to Agicap we are now able to centralise and unify the flows automatically and thus arrive at a truly centralised management and arbitration of our cash flow. "

— Patrick Doucet, General Manager of Ecophyse

How to diagnose and measure your cash flow

In order to fix cash-flow troubles, you must first gauge them precisely. Going past just business bank balance forecasting is the initial move toward more control, working with Key performance indicators (KPIs) and software supporting effective KPI management. 

One of the most important KPI-metrics is Free Cash Flow (FCF). It shows the cash a company generates after accounting for the capital expenditures needed to maintain or expand its asset base and is a true indicator of its financial performance and flexibility.

You can calculate it with a simple formula:

Step 1: Start with your Net Operating Profit After Tax (NOPAT).
Step 2: Add back any non-cash expenses, such as depreciation and amortisation.
Step 3: Subtract any increase in working capital.
Step 4: Subtract any capital expenditures (CapEx).

The result is your Free Cash Flow. A positive FCF means you have cash available to pay down debt, distribute dividends, or reinvest in the business. A negative FCF is a clear warning sign.

Calculating Free Cash Flow (FCF)

A straightforward example, starting with NOPAT and arriving at FCF: 

Ready to take control of your cash flow forecasting?

Calculating metrics like Free Cash Flow is a vital first step, but having a structured, easy-to-use tool makes planning and scenario modelling much more effective.
Download our free Cash Flow Forecast Excel Template to simplify your cash flow analysis, tailor forecasts for your business, and save valuable time.

Proactive strategies for dealing with cash flow problems

Once you understand the drivers of your cash flow problems, you can implement strategies to prevent them. Effective cash management is about creating systems that provide visibility and control.

Here are some of the most effective best practices:

Implement real-time cash flow monitoring

Ditch the spreadsheets and adopt a tool that connects directly to your bank accounts for a live, accurate view of your cash position.

Automate your cash flow forecasting

Use dynamic forecasting tools that automatically update based on real-time data, allowing you to build reliable short-term and long-term projections.

Centralise data from all accounts and entities

Consolidate cash flow information from every subsidiary, bank, and currency into a single dashboard to get a true picture of group liquidity.

Conduct proactive scenario planning

Don’t wait for a crisis to happen . Run cash flow stress tests to model the impact of different scenarios, such as losing a major client or a 10% increase in material costs.

Optimise payment and collection cycles

Systemise your accounts receivable process to follow up on late payments automatically. At the same time, negotiate better payment terms with your own suppliers where possible.

Maintain healthy cash reserves

Keeping a buffer of available funds ensures you can meet unexpected expenses or income delays, reducing reliance on emergency financing.

Agicap in action: The Treasury Powerhouse for finance teams

The best practices listed above are difficult to achieve with manual processes. That’s why modern finance teams are turning to treasury management platforms like Agicap to automate tasks and gain strategic insight. Agicap is designed to solve the root causes of cash flow problems.

Here is how Agicap’s features translate into practical solutions:

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  Real-time cash flow monitoring and dashboards: Agicap links with all your banks and business platforms, giving you live, customisable visibility of your cash position and status, eliminating manual data entry.

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  Automated forecasting and scenario planning: Our system makes your cash-flow projections automatic, creating more precise and trustworthy results. The scenario-planning feature lets you quickly gauge how possible events might affect your coming cash, turning forecasting into a strategic tool.

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  Multi-entity and multi-currency consolidation: The platform pulls together cash balances and movements info from all your subsidiaries, offering you a full, entire-group picture for cash balances and cash-flow. 

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  Automated accounts receivable and payable management: Streamline your collection and payment processes within the same platform. Agicap helps you identify overdue invoices and manage your outgoing payments to optimise your working capital.

Getting started with Agicap

Shifting from spreadsheets to a specialised cash-management and forecasting system is a key point towards Treasury Excellence . It liberates your finance team from manual chores and empowers them to become strategic thinkers and partners for the business. 

Quit responding reactively to cash flow problems and begin steering your business strategically ahead of time.  Keen to see how Agicap can grant you the foresight and control you require?

Book a personalized demo to discover how our all-in-one treasury management platform can solve your specific cash flow challenges.

FAQs about cash flow problems

What are the main causes of cash flow problems? 

Common external and tough-to-manage culprits include late client payments, increased operational expenditure, poor financial forecasting, long payment cycles and macroeconomic pressures. Internally, manual procedures and the absence of real-time information transparency are also significant contributors.

How can cash flow problems be solved? 

Remedies to cash-flow problems include improving internal processes and strategic financial management. You can invest in instant liquidity monitoring and automated cash-flow projection software to get a tighter grip on information deficits while at the same time speeding up invoice collections and negotiating better supplier terms. 

What are examples of cash flow problems? 

Think of a profitable business consultancy that is required to pay its employees monthly while waiting for the main client to make a payment after sixty days. Or imagine a sports retailer investing heavily in inventory before summer and subsequently experiencing sluggish sales in winter, being left with tied up liquidity in unsold merchandise.

How can you improve cash flow quickly? 

To enhance liquidity and cash-flow swiftly, prioritise accelerating your cash receipts while postponing outflows. Pursue overdue invoices and receivables vigorously, offer modest reductions for early payments and arrange extended payment schedules with vendors. Also, review and cut all non-essential spending immediately.

Why is cash flow so important for a business? 

Ready cash and instant liquidity are indispensable for meeting routine commitments, including paying staff and settling with vendors. Healthy cash flow enables organisations to withstand financial adversity, allocate resources towards expansion projects, and maintain solvency without relying on expensive borrowed capital.

Why are delayed customer payments a major cash flow problem?

Delays or defaults in customer payments directly impact your available cash reserves, limiting your ability to pay suppliers and staff on time and often creating a ripple effect that can threaten your business’s liquidity.