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Study Notes

Causes of cash flow problems

Level:
A-Level
Board:
AQA, Edexcel, IB, OCR

Last updated 22 Mar 2021

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What is a cash flow problem and what do they happen so often in all types of business?

A cash flow problem can be defined as:

When a business does not have enough cash to be able to pay its liabilities

The main causes of cash flow problems are:

  • Low profits or (worse) losses
  • Over-investment in capacity
  • Too much stock
  • Allowing customers too much credit
  • Overtrading
  • Unexpected changes
  • Seasonal demand

Let's look at these in a little more detail.

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