Cash Flow Management Challenges & Pain Points (2024)

Integrating the right cash flow management strategy is difficult even in a normal world.

Today’s business leaders must tackle rising interest rates, inflation and other ever-changing market conditions while ensuring they have adequate funds available to drive growth and bring their goals to fruition.

As experts in helping businesses integrate effective cash flow management strategies, we’ve outlined some of the main cash flow management challenges and some simple things you can do to mitigate their effects.

What is cash flow management?

Cash flow management is the process of identifying, tracking and properly utilizing the amount of money that’s flowing into and out of your business.

An important note: Successful cash flow management is dependent on industry knowledge and effective business partnerships throughout the organization as complexity varies from industry to industry.

Common Cash Flow Management Challenges & Pain Points

1. Not having a sufficient cash reserve
2. Failing to develop a solid pricing strategy
3. Management of Accounts Receivable and Accounts Payable
4. Having a forward-looking working capital strategy that sustains rapid growth
5. Poor financial forecasting and reporting practices
6. Failing to implement systems that support cash-flow reporting infrastructure

Not having a sufficient cash reserve

If your business fails to have sufficient capital for at least 9 to 12 months’ worth of expenses (also referred to as “cash runaway”), it’s going to be difficult to make strategic decisions about how to overcome market pressures, unexpected expenses or decreases in revenue.

For example, if you work in the manufacturing industry, you likely have multiple contracts that are typically paid out months to years after a project begins. It’s essential to understand when these payments are coming in – and the measures you’re going to take to secure a sustainable cash flow until they’re paid out.

Or if you work within the SaaS industry, cash flow management comes in the form of order-to-cash or procure-to-pay procedures that need to align with your overall spend management policies.

Whatever your industry, it’s vital to have a solid understanding of how the growth of your business will impact your cash reserve in order to ensure adequate funds are available.

Failing to develop a solid pricing strategy

Pricing your products too low will lead to lower profit margins, and pricing them too high might cause friction with customers – as such, it is important to integrate a well-developed pricing strategy if you want to avoid cash flow challenges.

However, developing pricing strategies and conducting pricing analysis is difficult enough on its own. For example, one facet of a successful pricing strategy requires comparing the prices of your products and services to others in the industry.

For SaaS industries in particular, there are thousands of products that could be viable comparisons – it is not only challenging to compile and identify the right comparisons but also understand where your business best fits into the mold.

Management of Accounts Receivable and Accounts Payable

Successful cash flow management requires having visibility into and policies surrounding AR and AP, including measures to establish credit policies, shorten transaction cycles and stay on top of account ongoings.

For example, what happens if 10% of your revenue is tied into one project that won’t be completed for over a year? It becomes even more essential to stay on top of your AR for that client in order to ensure adequate funds are available until the project is paid out.

Having a forward-looking working capital strategy that sustains rapid growth

It’s easy to make cash flow management mistakes when you’re experiencing periods of rapid growth.

Not only are you needing to switch your focus to all the large-scale changes that come alongside growing a business but there is also a tendency for businesses to over-forecast during this time, leading to an inability to make strategic growth decisions based on future funds.

While challenging to develop, it is vital to have a forward-looking FP&A and financial modeling strategy that eliminates the potential for risk to occur and provides accurate insights that account for rapid growth and change.

Poor financial forecasting and reporting practices

As cash flow management is quite a complex process, it becomes challenging to integrate the proper forecasting and reporting practices that provide the real-time financial insight needed to identify the best path forward.

Failing to develop the proper forecasts and reports can lead to a multitude of other issues: insufficient cash flow, failed audits, an inability to adhere to laws and regulations, not being able to convince investors to do business with you, and many other costly setbacks.

Failing to implement systems that support cash-flow reporting infrastructure

When business leaders choose to utilize Excel rather than implementing technology that supports cash-flow reporting infrastructure, it becomes challenging to make strategic decisions that add value to their business.

Tracking everything manually in Excel can lead to many costly errors – but understanding which technology services and solutions are the best fit for your unique company needs is equally as complex.

How to Overcome Cash Flow Management Challenges

Cash flow management can bring any number of challenges – especially considering that choosing the right strategies depends very heavily on your industry and unique business concerns.

For best results, you may want to consider turning to a financial consultant that takes the time to learn about your business drivers, goals, and cash management concerns before developing a plan of corrective action.

Whether you need to implement a new technology or integrate better reporting functionalities, turning to outside expertise will best prepare you to eliminate challenges while fostering growth and innovation.

Quick tips to overcome cash flow management challenges:

• Integrate solid FP&A tools for forecasting, reporting and driver based scenario planning
• Hone in on working capital KPIs directly correlated to cash such as: Day Sales Outstanding (measures the average number of days it takes a business to receive payment for goods or services on credit) and Day Payable Outstanding (measures the average number of days it takes a business to pay its bills to vendors)
• Focus on operational and technological enhancements to cut down on overhead spend
• Develop a plan & ensure solid business fundamentals before applying for loans
• Create robust review processes to keep tabs on cashflow ongoings
• Turn to a financial consultant for guidance