The short answer
A liquidity squeeze almost always announces itself long before the account is empty. Typical warning signs are falling bank balances despite revenue, rising open receivables, payment terms you keep stretching, and a plan that no longer matches reality. If you know these signs and look at the numbers weekly, you gain time to counteract.
Eight warning signs
- The bank balance falls although revenue is fine. Revenue is not cash in the account. If customers pay later than you must pay suppliers and salaries, a gap opens up.
- Open receivables grow. If the number of overdue invoices rises, less cash comes in. Good receivables management spots this early.
- You postpone payments. Anyone who regularly puts suppliers off or stretches payment terms is using money that is not theirs.
- The credit line is permanently used up. Without a buffer, a single payment default is enough to cause a squeeze.
- The plan no longer holds. If plan and actuals deviate clearly for several months in a row, the basis for decisions is shaky.
- Runway shrinks. If the number of months your cash lasts at current burn falls, you should act. The runway calculator shows this at a glance.
- Banks or investors ask more often. More questions about the numbers are often a sign of unrest on their side as well, for example because of covenants.
- You get numbers late. If the month-end close only arrives after weeks, you steer with old data.
What you can do right away
- Create a weekly liquidity status: expected inflows and outflows for the next weeks. The approach is described in our guide to the 13-week cash flow forecast.
- Chase receivables actively: prioritize overdue invoices, automate payment reminders.
- Review expenses: what can be postponed and what cannot? Do not cut across the board, sort by impact.
- Talk early to your bank and investors: whoever comes with a plan in time has better cards than someone who only calls once the squeeze is there.
- Check working capital: payment terms, inventory and billing rhythm strongly influence liquidity.
When to get support
If several warning signs come together or runway is down to a few months, external help pays off. It brings experience with such situations and time that is missing internally. In case of impending insolvency or over-indebtedness, managing directors have special duties. Get legal advice promptly in that case. How we support companies in such phases is described on our Interim CFO page.
Frequently asked questions
How do I spot a liquidity squeeze early?
By falling bank balances despite revenue, growing open receivables, postponed payments and a plan that deviates from reality.
How often should I check liquidity?
Weekly in critical phases, otherwise at least monthly. A rolling 13-week forecast has proven effective.
What is the difference between liquidity and profit?
Profit is the result of income and expenses. Liquidity is the cash actually available. A company can make a profit and still become insolvent.
What should I do in an acute liquidity squeeze?
Prioritize payments, chase receivables, talk to your bank and investors and have legal duties checked. If in doubt, professional support helps.
