It often happens that in financial reports, “on paper”, a business makes a profit. However, in fact, there is not enough money in the cash register. You cannot work normally and pay for immiate expenses: wages, interest on loans, and so on.
At such moments, management faces problems: the budget is there, but not in the cash register, the money will come later. At the same time, debts must be paid here and now. A dangerous situation arises, which is call a cash gap. It can cause extremely negative consequences and affect even a successful and seemingly profitable business.
What is a cash gap in simple terms
A cash gap is a situation in which a company’s buy bulk sms service accounts temporarily lack funds to cover current liabilities. That is, the company is oblig to make certain payments – salaries, taxes, but the available money is not enough at the moment. At the same time, the company has enough profit: total income, for example, for the year is higher than expenses.
It is important not to confuse a cash gap with other concepts. It is not a cash deficit. A cash gap is only a temporary shortage of money. If you look at the whole, for example, not for a specific month, but for a quarter or a year, as a rule, there will be no problems. There is enough income and revenue.
An example of a cash gap is when a company has large settlement of financial issues customer receipts schul for the end of the month, while standard expenses, such as salaries, interest on loans, and rent, must be paid at the beginning. In this case, even if the company ends the month in the black, at some point it will face a shortage of funds in its current account.
The dangers and consequences of a cash flow gap
At first glance, it is not always clear what is dangerous about a cash gap and why it can theoretically lead to bankruptcy. After all, in essence, the company has money, it just nes to wait for it.
But the point is that the waiting period can vary from a singapore phone list few days to weeks or even a couple of months. During this time, the company may face serious financial and legal problems. Let’s look at the main dangers and consequences of a cash gap in large, mium, and small businesses .
- Employee issues In the short term, cash flow gaps can make it so that the company cannot pay employees on time. The main problem is the loss of loyalty from employees. They will not tolerate delays in salary payments, and the company will begin to lose personnel. The work process will slow down .