The Impact of Tariffs: Cash Flow (Part 2 of 3)

In Part 1 of this series, we looked at how tariffs disrupt raw materials and pricing strategies. But once those changes are in motion, another issue quickly follows: cash flow.

In Part 1 of this series, we looked at how tariffs disrupt raw materials and pricing strategies. But once those changes are in motion, another issue quickly follows: cash flow.

Tariffs don’t just increase costs. They affect how and when money moves through the business. A 10% tariff might seem manageable—until it’s multiplied across every container, every invoice, and every vendor interaction. Now your working capital is tied up in inventory and you’re under pressure to renegotiate terms, delay payments, or take on more risk.

When Tariffs Strain Liquidity

Tariffs hit cash flow in multiple places:

• Front-loaded payments: If you’re importing raw materials, tariffs must be paid up front before goods clear customs. That’s money out the door before the product even enters inventory.
• Inventory accumulation: Some companies try to buy ahead of tariff hikes, tying up even more capital in stockpiled goods.
• Mismatch between AP and AR: You might pay for goods today—including the tariff—but not get paid by your customer for another 60–90 days.
• Delayed payments and strained supplier relationships: If cash is tight, companies may delay paying their own suppliers, risking trust and continuity.
• Longer terms from customers: Large buyers may respond to price increases by extending their payment cycles—stretching your receivables just when you need faster turnover.

Tariffs introduce a liquidity squeeze that has less to do with profit margins and more to do with timing.

For companies that manage it well, that float can ease liquidity strain. But for others, delayed payment becomes a ballooning risk.

Tariff Timing Matters

Most importers must pay tariffs before goods clear customs—but some have more flexibility than others. U.S. Customs and Border Protection allows up to 10 working days to pay. If your company uses the Periodic Monthly Statement (PMS) system, that window can stretch to as much as 45 days, depending on the entry date.

For companies that manage it well, that float can ease liquidity strain. But for others, delayed payment becomes a ballooning risk.

A Strategic Risk, Not Just a Finance Problem

The ripple effect of tariffs isn’t just about making ends meet. It can lead to deeper operational and strategic consequences:

• Increased raw material costs: Companies are forced to spend more upfront for the same inventory. This squeezes liquidity.
• Cash flow strain: With more cash tied up in inventory or inflated costs, businesses prioritize essentials—like payroll—over paying suppliers.
• Delayed payments to suppliers (including you): If your customer is cash-strapped, your receivables may stretch well beyond normal terms.
• Higher credit risk: The thinner the margin, the higher the chance of default—especially in sectors heavily reliant on imports.
• Pressure to renegotiate terms: Your customers may ask for extended payment windows, discounts, or temporary relief.
• Potential for write-offs: If a company can’t weather the financial pressure, you may face partial or full losses on receivables.

Managing receivables during tariff-driven volatility isn’t just a collections task—it’s a strategic cash flow and risk management challenge.

Coming Next

In Part 3, we’ll move from near-term cash constraints to long-term strategic questions: How do tariffs affect CapEx decisions, market positioning, and the balance between transparency and control? How do tariffs affect CapEx decisions, market positioning, and the balance between transparency and control?

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If you’re in L&D and wondering whether tariffs belong in your business acumen solution, we’ve written more on how to assess that—and what to listen for inside your own organization. Read more →

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