Day-to-day effects of a lack of cash

A lack of cash means a business does not have enough money available when payments are due. Cash is needed to pay running costs such as rent, utilities and wages, and to pay debts and suppliers on time. If the business does not have enough cash, these payments may be missed or delayed.

Paying running costs and debts

Everyday bills still need paying even when money is tight. A pottery-painting studio might have a waiting list of birthday bookings but no cash in the bank until the deposits clear. Meanwhile the monthly instalment on the kiln it bought on credit falls due, and so does its insurance. Missing those payments puts the equipment and the cover at risk and makes it harder to run the business normally.

Suppliers and stock

A business that cannot pay a supplier may find that the supplier refuses to supply goods or services. If a florist is behind on paying its flower wholesaler, the wholesaler may put the account on hold and stop deliveries, so the florist has no flowers to make up bouquets for a wedding order. Even without a refusal, a cash shortage can stop the business buying resources or stock such as flowers, ribbon and wrapping, so it cannot keep operating.

Cash transactions with customers

A lack of cash can also stop a business carrying out normal cash transactions with customers. A bike repair workshop that has very little cash in its till may be unable to refund a customer who paid in cash for a faulty light. Staff may have to delay the refund or ask the customer to come back another day, which annoys the customer and may lose their future custom.