In some cases, when commercial borrowers fail to pay back their financial obligations, it could be because the business is experiencing cash flow issues. This doesn’t necessarily mean the company isn’t making any money, but there’s some level of issue with the financial situation that makes it difficult for them to pay off what they owe.
For creditors, it’s important to understand why these cash flow issues happen and what they look like. They can heavily influence the odds that a creditor will be paid the money that they’re owed. Let’s take a look at a few examples.
No cash reserves
One issue is if a company doesn’t have any cash reserves. It should generally have money saved up to cover expenses for the next few months. But if a company has spent everything it has trying to grow and meet demand, there may not be any reserves left to pay off debt.
The loans are too expensive
In some cases, a creditor may not be paid because that borrower actually has a multitude of expensive loans from different sources. They’re trying to pay back what they can and making some payments, but they just can’t afford to pay everything at the same time. The problem can compound if there’s interest on those missed payments.
Late payments and outstanding receivables
Finally, some businesses are also owed money from other sources. If a company sent out a shipment of products that was worth $1 million and didn’t receive payment, then the business may suddenly not be able to pay its own debts. The company is successful and is making sales, but the lack of payment from those buyers can hold it back.
For creditors who haven’t been paid, it’s crucial to understand exactly what legal options there are and what steps can be taken at this time.