Cash Management for Distressed Companies: Where to Start When Liquidity is Tight
When liquidity becomes a daily concern, companies must act with speed and precision. Senior leaders don’t need a primer on cash flow—they need a clear framework for immediate stabilization and longer-term financial recovery. Here’s where to focus.
1. Build a Real-Time Cash Forecast
Decisions must be based on real numbers, not assumptions. Move beyond traditional monthly cash flow statements and implement a 13-week rolling cash forecast to track short-term liquidity. This should include:
Beginning cash balance
Expected cash inflows (receivables, scheduled funding, asset sales)
Expected outflows (payroll, vendor payments, loan obligations)
Minimum cash thresholds to maintain operations
This forecast will guide financial decisions and help you anticipate shortfalls before they become crises.
2. Restructure Payment Obligations
Not all liabilities are equally urgent. Rank obligations based on operational necessity and renegotiate where possible. Prioritize:
Payroll and critical suppliers
Debt obligations with penalties or legal risks
Fixed costs that cannot be deferred
Engage lenders and landlords early to restructure payments, extend terms, or explore covenant waivers. Silence limits your options.
3. Accelerate Receivables & Strengthen Collections
Cash sitting in receivables is cash that isn’t working for you. Shift focus to faster collections by:
Offering discounts for early payments on outstanding invoices
Re-evaluating payment terms for new contracts (net 30 instead of net 60)
Tightening credit policies—stop extending terms to slow-paying clients
Deploying a dedicated collections strategy—automated follow-ups, direct outreach, and legal escalation when necessary
If needed, consider factoring or asset-backed lending to convert receivables into immediate cash.
4. Eliminate Cash Drains
Review every expense and cut anything that does not directly support liquidity or revenue generation. Look at:
Discretionary spend: Marketing, travel, non-essential software
Operational inefficiencies: Unused assets, underperforming contracts, redundant services
Fixed costs: Lease renegotiations, utility optimization, deferred capital expenditures
Every dollar saved extends runway.
5. Optimize Inventory & Working Capital
For asset-heavy businesses, cash is often trapped in inventory. Unlock liquidity by:
Reducing stockpiles of slow-moving or obsolete goods
Renegotiating supplier terms for extended payment periods
Selling off excess inventory at a discount to generate cash
For service businesses, focus on lean operating models to minimize capital tied up in unbilled work.
6. Assess Alternative Liquidity Sources
Distressed companies often avoid new financing, but the right structure can buy time without jeopardizing recovery. Evaluate:
Short-term revolving credit with flexible repayment terms
Bridge financing to manage immediate liquidity gaps
Sale of non-core assets to generate quick capital
Avoid high-interest debt unless it is tied to a clear revenue-generating outcome.
7. Align Leadership on the Turnaround Strategy
Cash management is not just a finance function—it requires executive alignment. CEOs, CFOs, and operational leaders must have weekly cash reviews with clear action items and accountability. Transparency across leadership teams prevents financial surprises and ensures coordinated decision-making.
Final Thoughts
In a distressed situation, time is the scarcest resource. Immediate liquidity actions should stabilize the company, but sustainable recovery requires structural change. Infinity Consulting Group Solutions works with executives to navigate financial distress and drive long-term turnaround strategies.
