ECONOMICS

Detailed explanation-1: -Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level).

Detailed explanation-2: -A cash flow problem is when the cash going out of the business outweighs the cash coming in, causing a lack of liquidity meaning a company will struggle to make payments to suppliers, pay bills and ultimately running the business effectively.

Detailed explanation-3: -Cash flow only becomes a problem when outflows exceed inflows. At that point, the business uses up its cash reserve and can no longer meet its liabilities. Cash flow issues can arise from low-profit margins, problems invoicing and collecting payments, and over-investing in inventory or capacity.

Detailed explanation-4: -But, if your customers don’t pay you on time, your cash outflow will slowly become bigger than your cash inflow. This results in you being incapable of paying your wages, rent, and the other things you need for your day-to-day operations.