You hit an expensive month
There are a number of reasons that this happens including an unexpected tax bill, higher staff costs for the month, or you had to purchase more stock. Preparation is the best defence. It may be useful to set aside money in your budget each month as a safety net. By doing this, it’s like spreading the cost of the expensive month out over a number of months.
A client doesn’t pay on time
For many SMEs, cash flow is crucial. If a client doesn’t pay on time, a spanner is thrown in the works. When you’re a small business owner you don’t have enough time to wait months for an invoice to be paid. Contrary to the notion of these unpaid invoices being deadweight, they can be put to good use through invoice financing as assets to borrow money against. There are a number of companies who are able to provide fast invoice finance to help you meet your financial obligations.
A timing mismatch in accounts receivable and payable
In some situations, cash flow problems are due to poor timing. For example, your business might invoice on 90 day terms but your accounts payable are on 30 day terms. A situation like this can lead to ‘lumpy’ cash flow, with some months of surplus, and other months that run very tight. It might be worthwhile to look into the timing of your receivables and payables to see if you can create a better match.