Cash flow red flags every director should watch

Rising debtor days

If your debtor days are creeping up — customers taking 50 days to pay what they used to pay in 35 — cash is draining out of the business, even if sales look fine. It is one of the earliest and clearest warnings, because it directly widens your cash flow gap. Track it monthly; a rising trend is a call to tighten credit control now.

A shrinking cash buffer

Watch the low point of your bank balance each month, not the average. If the trough is getting lower month on month — you are ending each cycle with less headroom — your buffer is eroding, and a single bad month could tip you over. A steadily falling minimum balance is a slow-motion alarm that is easy to miss if you only look at the peaks. See building a cash buffer.

Living in the overdraft

An overdraft is meant for short, occasional dips. If you are never out of it — if the account is permanently overdrawn and the facility feels like part of your baseline cash — that is a structural cash problem wearing a temporary tool's clothing. It usually means the business needs either a proper working-capital facility or a look at why cash never recovers.

Robbing Peter to pay Paul

Delaying VAT or PAYE to pay wages, stretching every supplier to the limit, juggling which bill to pay this week — these coping behaviours are red flags in themselves. They signal that outgoings have outrun income and you are managing symptoms, not the cause. HMRC arrears in particular are dangerous, carrying interest, penalties and, ultimately, enforcement. See the warning signs and act before they compound.

Acting while options are cheap

The common thread is time: every red flag is cheaper to fix early. Arrange a facility while you still have a choice, tighten collection before debtor days spiral, rebuild the buffer before it vanishes.

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