ECONOMICS

Detailed explanation-1: -When businesses are not paid on time, this would limit the business’s cash flow and thus, hinder the businesses growth. The insufficient cash flow will cause the business to not be able to take on new projects, fill large orders and invest in new equipment as they are fearful of overextending their financial exposure.

Detailed explanation-2: -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.

Detailed explanation-3: -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-4: -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.