There are a number of signs a company might be struggling with liquidity problems including a consistent, limited or negative free cashflow generation over multiple years. A company that can't generate free cashflow and is in constant need of additional financing to keep operating is commonly known as a zombie company, and it requires special attention. Since this is not sustainable in the mid to long run.
Another sign of liquidity problems is constant use of overdraft or being fully drawn on revolving facilities. If revolving credit facilities are constantly maxed out, it means that the company needs much more liquidity than usual. Remember that such facilities are mostly used for working capital purposes, and therefore not having access to additional funds might interfere with the normal day-to-day operations of the company, such as not having enough financing to fund inventory purchases ahead of a busy seasonal period or such as the lead up to the festive period for many retailers.
A third liquidity problem sign is a limited availability to raise additional financing when a company can't raise additional debt. If liquidity ever becomes tight, the company will be in deep trouble. Since arranging alternative types of financing, for example, through disposing of assets or raising equity is more complex and time consuming than using pre-arranged lines of financing.
A company in distress that is running outta cash sometimes doesn't have much time to play with. And lastly, constant delays in paying salaries, taxes, or supplier invoices are a clear sign of liquidity issues. Companies delaying critical outgoings such as salaries is a key indicator that they are trying to preserve as much liquidity as possible and therefore could be into distress.
