Bookkeeper's Guide: Spot Financial Red Flags Early

Introduction

According to CB Insights, 29% of startups fail because they ran out of cash. CB Insights.

Quick bookkeeping red flags show up long before a business runs out of cash, and catching them early preserves profitability, client trust, and growth options. I’ll define the core problems, show the practical signs to watch for, and give step-by-step detection and automation workflows you can implement this week.
Keep reading to learn how to monitor, automate, and act fast.

What I mean by a “financial red flag” and why it matters

A financial red flag is an early indicator of trouble—cash shortfalls, data errors, rising receivables, suspicious transactions, or controls breakdowns. Spotting these signals earlier reduces costly surprises and gives you options: renegotiate terms, accelerate collections, or limit spend.

I approach this from the bookkeeper’s desk: real transactions, frequent reconciliations, and repeatable alerts. The goal is to turn reactive firefighting into predictable monitoring so you can scale your practice and help clients grow.

Top red flags to watch (with quick detection actions)

1. Rising Days Sales Outstanding (DSO). Track average days invoices remain unpaid; a steady increase often precedes cash crunches. Run an aged receivables report weekly and flag customers past terms 30% more than normal.
2. Shrinking cash balance relative to monthly burn. Compare bank balance to budgeted monthly payroll + payables; flag when cash < 27 days of cash (customize per client). I generate a rolling cash runway every Monday.
3. Repeated reconciling adjustments. Multiple manual journal entries to force a bank reconciliation signal data-quality issues or fraud. Tally the count of journal edits per month and investigate any spike above baseline.
4. Duplicate or missing invoices and bills. Duplicate bill entries and missing invoices distort profitability and tax reporting. Use software detection or run fuzzy-match searches in QuickBooks.
5. Unusual vendor or payroll changes. New vendors, sudden vendor payment frequency changes, or unexpected payroll items warrant verification. Match vendor invoices to contracts or purchase orders.
6. Negative working capital trends. Current liabilities consistently outrunning current assets calls for strategy adjustments—tighten AR, extend AP where possible.

7-item daily/weekly bookkeeping checklist

• Daily: Review bank feed for unapplied deposits and flagged rules in QuickBooks Online.
• Daily: Scan Torn Transactions — transactions not coded to customers/projects.
• Weekly: Run A/R aging, A/P aging, and reconcile all active bank/credit card accounts.
• Weekly: Compare bank balance to forecasted payroll + essential bills for the coming 30 days.
• Weekly: Review high-dollar changes in vendor payments and last-minute vendor additions.
• Monthly: Audit for duplicate invoices/bills and reconcile payroll liabilities.
• Monthly: Share a short summary with the owner: cash runway, top 3 risks, recommended actions.

Automating detection: tools, workflows, and QuickBooks Online tips

Automation reduces the “manual grind” that consumes 2–4+ hours/week for many bookkeepers. Start with QuickBooks Online (QBO) and add monitoring layers.

• QuickBooks Online:

  • Use bank rules to auto-categorize recurring transactions and reduce manual coding.
  • Create recurring invoices or bills templates for predictable cash flows.
  • Use the A/R and A/P aging reports and scheduled reporting to email summaries to owners.

• Add-on monitoring tools:

  • I recommend a real-time alerting layer for QBO activity like Lunova. Lunova sends customizable alerts for low balances, overdue invoices, unexpected deposits, and more across multiple QBO companies.
  • Use a payroll provider with reporting APIs so payroll liabilities and changes show up in your monitoring stack.

• Example automation workflow:

  1. In QBO, set bank rules for known vendors to reduce mis-categorization.
  2. Configure Lunova to alert on: low balance threshold, invoices >30 days past due, new large vendor payments, and high-value bank withdrawals.
  3. Route alerts to Slack/email and create tasks in your practice management tool for follow-up.

30-day action plan to catch red flags fast

Week 1: Baseline and reports

• Generate 3 months of A/R aging, A/P aging, bank reconciliation edits, and cash balance history.
• Set baseline thresholds (e.g., DSO increase >10% triggers alert).

Week 2: Clean-up and quick fixes

• Resolve top 5 overdue invoices and investigate reconciling adjustments.
• Implement bank rules in QBO and train any client staff on invoice submission protocol.

Week 3: Automate monitoring

• Deploy Lunova or your monitoring tool and set immediate alerts for low balance and invoices >60 days.
• Create workflows for alert triage and owner escalation.

Week 4: Policy and prevention

• Establish payment terms enforcement: automated reminders, late fees if reasonable, and a collections timeline.
• Add monthly controls: vendor change approval, two-person sign-off for large payments, and payroll change verification.

Table: Common red flags, likely causes, and first actions

Red flag	Likely causes	Immediate action
Rising DSO	Weak collections process; new slow-paying customers	Send statement, call top 5 overdue clients, enable invoice reminders in QBO
Recurring reconciliations adjustments	Data entry errors; duplicate entries; bank feed lag	Review last 10 adjustments, map patterns, correct source transactions
Low bank balance vs. forecast	Overspending, delayed receivables	Freeze non-essential purchases, negotiate vendor terms, accelerate collections
Unusual vendor payments	Fraud, unauthorized payees	Verify vendor contact and payment approval, place holds on future payments
Duplicate invoices	Data entry or import issues	Run fuzzy-match, void duplicates, adjust vendor payments

Detecting duplicate entries and data errors

Duplicates often come from manual imports or repeated invoice templates. I run a fuzzy-match search by date, amount, and vendor in QBO and flag matches above 90% similarity for review. Lunova is developing duplicate entry detection which can reduce this manual step by alerting you when suspicious duplicates appear.

Example: a $5,000 invoice created twice for the same client will show as an unexpected jump in revenue and overstated A/R; catching it within days avoids mistaken tax reporting and cash forecasting errors.

QuickBooks-specific workflows I use

• Reconciliation rhythm: reconcile bank accounts weekly for active accounts, monthly for low-volume accounts. I keep a reconciliation log in QBO notes and tag every manual journal with a reason code.
• Invoice follow-up: set up 3 automated reminders (7, 14, 30 days) in QBO. When an invoice crosses 60 days, I get a Lunova alert and assign a follow-up task in the bookkeeping system.
• Vendor changes: require an email and contract upload before adding a new vendor in QBO. For high-risk clients, I lock vendor creation to an admin role.

Control frameworks and preventive policies

• Segregation of duties: separate bill entry, approval, and payment between two people where possible.
• Approval thresholds: require CFO/owner sign-off for payments above a set limit (e.g., $5,000).
• Vendor masterfile hygiene: require W-9s and contract references before vendor activation.
• Access reviews: audit QBO user permissions quarterly and remove inactive users.

When to escalate and how to communicate with owners

Escalate when: cash runway < 30 days, unexpected negative reconciliations, payroll liability mismatches, or suspected fraud. I send a concise alert that includes the issue, impact in numbers, and two recommended next steps (e.g., “pause discretionary spend” and “call top 3 overdue customers”).

Keep communications data-driven: include snapshots from QBO reports, bank screenshots, and the suggested timeline for remediation.

How Lunova fits into a bookkeeper’s toolkit

Lunova complements QBO by providing real-time alerts across multiple QuickBooks Online companies so you don’t need to open each company daily. Use Lunova to:

• Monitor low-balance scenarios and get notified before payroll runs.
• Receive immediate alerts for overdue invoices, large deposits, or suspicious vendor payments.
• Consolidate monitoring for 6–50+ QBO clients without extra manual checks.
  Learn more: Lunova.

Example client scenario and resolution

Client: A retail business with seasonal cash swings saw a sudden DSO increase and a drop in bank balance. I ran the A/R aging and found two major invoices stuck in dispute due to missing delivery confirmations. I set up QBO invoice reminders, used Lunova to alert me if cash dipped below the payroll threshold, and negotiated extended terms with one vendor to bridge the gap. Result: payroll covered, disputes resolved, and cash runway restored.

FAQs

Q: How often should I reconcile accounts to spot red flags early?
I reconcile active bank and credit card accounts weekly and lower-activity accounts monthly. Weekly reconciliations shorten the feedback loop and make anomalies easier to investigate.

Q: Can automation replace manual review entirely?
Automation catches many patterns and sends timely alerts, but I still perform judgment-based reviews for exceptions and high-risk items. Automation reduces time on routine checks so you can focus on exceptions.

Q: What thresholds should I set for low-balance alerts?
Set thresholds based on payroll and essential monthly obligations; common choices are 14, 30, and 60-day runway alerts. I recommend starting with a 30-day runway threshold and adjusting based on client volatility.

Q: How do I prevent duplicate invoices and bills in QuickBooks?
Use consistent naming conventions, avoid manual CSV imports without validation, and set up automated duplicate-detection tools. Run periodic fuzzy-match checks and set review steps before bulk imports.

Q: When should I involve an accountant or external advisor?
If you detect potential fraud, sustained negative cash trends, or material misstatements in financials, escalate immediately. Accountants can provide tax, legal, and remediation guidance beyond bookkeeping corrections.

Closing and next step

Early detection changes outcomes. I build monitoring that turns signals into actions—automated alerts, clear thresholds, and a repeatable escalation path. If you manage multiple QuickBooks Online clients, consider adding an alerting layer like Lunova to reduce manual checks and focus on high-impact client work.