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Cash flow crises in manufacturing rarely start with an empty bank account.
They start quietly, with small misalignments between what different parts of the business are seeing. By the time everyone agrees there’s a problem, the options are already narrowing.
Understanding those early warning signs is what separates companies that contain the damage from those that don’t.
The Core Problem: Everyone Sees Something Different
At any given moment during the early stages of a cash flow crisis, this is often what’s happening:
- The board sees stable EBITDA and acceptable backlog, no immediate cause for alarm
- The plant is dealing with schedule disruptions, rising costs, and growing inventory
- Treasury is revising the cash forecast for the third week in a row
- Lenders have quietly shifted from routine check-ins to information requests
None of these groups are wrong. They’re just looking at different pieces of the same picture. And as long as that picture stays fragmented, the problem grows.
What the Board Sees: The Numbers Look Fine
Boards typically track EBITDA, revenue trends, backlog, and covenant headroom. In the early stages of a cash crisis, these numbers often still look acceptable.
Revenue is holding. Margins are under some pressure, but nothing alarming. Covenant headroom still exists on paper.
The blind spot: EBITDA is an accounting measure. Cash is a timing reality. A business can be EBITDA-positive and still consuming cash if working capital is quietly expanding, receivables stretching from 45 to 58 days, inventory turns slowing from 8x to 6x. These shifts don’t always show up clearly in standard board reports.
The dashboard looks fine. The operating system underneath it doesn’t.
What the Plant Experiences: Friction
The plant usually feels the problem first, often months before it shows up in financial reporting.
Watch for these early signs:
- Production schedules becoming harder to stick to
- More expedite orders and rush freight to keep customers happy
- Inventory building up as teams buffer against uncertainty
- Maintenance being pushed back to protect short-term costs
- Yield issues creeping up
Any one of these on its own is just an operational headache. But when they show up together, they’re doing something specific to the balance sheet, absorbing cash before revenue even drops.
The plant is living the problem. The boardroom hasn’t heard about it yet.
What Treasury Sees: A Forecast That Keeps Changing
Treasury is usually the first function to sense that something structural is shifting, even if they can’t yet point to exactly what.
The signs show up like this:
- The 13-week cash forecast needs revising mid-week, not just weekly
- Forecast variance widens, what used to be +/-$2M is now +/-$6M
- Customers who used to pay in 45 days are now taking 52
- Supplier payments need active managing to preserve relationships
- Revolver usage starts moving in ways that feel reactive
None of it looks like a crisis yet. It looks like a string of one-off explanations.
But when the treasurer is spending more time explaining variances than managing to a plan, that’s the signal. The effort required to hold things together is itself the warning sign. It just rarely gets reported that way.
What Lenders Infer: Pattern Recognition
Lenders aren’t waiting for a covenant breach to form an opinion. They’re reading patterns, and they’re usually reading them across dozens of borrowers at once, which gives them a sharper eye for trajectory.
What they’re watching before anything formal happens:
- Are information requests increasing in frequency?
- Is management’s narrative matching what the numbers show?
- Is working capital as a percentage of revenue trending the wrong way?
- Are EBITDA actuals consistently missing forecasts, even slightly?
Under asset-based lending structures, lenders can quietly tighten advance rates against receivables or inventory as quality metrics drift, reducing available credit without a formal conversation. Under cash flow structures, they’re watching leverage and coverage ratios for direction, not just for threshold breaches.
Once their confidence in management’s financial grip starts slipping, their negotiating posture tightens. First quietly, then formally.
By this point, the issue isn’t solvency. It’s reduced flexibility, and reduced flexibility compounds fast.
When Everything Converges at Once
The most dangerous moment isn’t the first missed covenant. It’s when all four perspectives, board, plant, treasury, lenders, suddenly align around the same bad news after months of quiet divergence.
Why does this happen? Because early warning signs get rationalized:
- Inventory buildup? “Customers asked us to buffer stock.”
- Margin pressure? “Input costs, temporary.”
- Forecast revisions? “We’re being conservative.”
- Cash conversion slipping? Nobody’s tracking it closely enough.
Management teams often focus on earnings, not liquidity. Boards prefer a stabilization story over a volatility explanation. So the gap between what’s actually happening and what’s being reported stays open longer than it should.
When it finally closes, it closes fast. For public companies, that can mean Form 8-K territory, credit amendments, material liquidity disclosures, leadership changes, within weeks. What was an internal issue becomes an external one.
What to Do About It
The window to act is not when lenders escalate. It’s earlier, when the signs above are visible but haven’t been formally connected yet.
Three things that matter most at that stage:
1. Integrate the views.
Plant friction, treasury variance, and board reporting need to be looked at together, not in separate silos. The crisis lives in the gap between them.
2. Shift focus to cash, not just earnings.
EBITDA gets managed. Cash conversion gets watched. That shift in emphasis can surface the real picture weeks earlier.
3. Establish clear financial authority.
When accountability for liquidity is spread across functions or unclear, warning signs get owned by no one. Someone needs to be responsible for the full picture. In situations where internal bandwidth is stretched or the existing team is too close to the problem, some boards bring in an Interim-CFO or financial leader on a short-term basis.
Not as a replacement strategy, but to get an independent set of eyes on the numbers, restore forecasting discipline, and stabilize lender relationships while the business works through the pressure. It’s a practical option worth knowing about before the situation forces a decision.
Cash flow crises in manufacturing are cumulative. Every week of misaligned visibility is a week of narrowing options.
The companies that contain the damage aren’t necessarily the ones that saw the problem first. They’re the ones that connected what they were seeing and acted before the four perspectives converged into a crisis. Sometimes that takes fresh leadership. Sometimes it just takes the right decision made early enough.
