Photo by Andre Taissin
Nonprofit Cash Flow:
How Successful Organizations Go Broke
by: Evan Tucker
TL;DR: A nonprofit can be doing everything right — delivering services, submitting invoices, following every rule — and still face a devastating cash crisis. Here’s why, and what you can do about it.
In April 2025, the New York City Comptroller published a report with a clever little title that belied a cold reality: “Nonprofit, Nonpayment.”
What it documented was staggering. Over 4,000 unpaid invoices owed to nonprofits across the city. $861 million dollars. Late payments sitting in government accounts for work that had already been done. At the vast majority of city agencies, the average time from a contract’s start date to the nonprofit receiving its first payment was 200 days — six and a half months.
Six and a half months of their staff showing up, their programs running, their community being served. And their money nowhere to be found.
The $8 Billion Problem
New York City contracts with nonprofits to deliver about $8 billion worth of human services every year — food programs, housing support, mental health services, youth programs. The kind of work government contracts out because nonprofits can often do it better.
Here’s how it’s supposed to work: the city signs a contract, the nonprofit delivers services, the city pays. Simple.
Here’s how it actually works: In Fiscal Year 2024, ninety percent of nonprofit contracts with New York City were registered late. Which means nonprofits were showing up, paying staff, and keeping the lights on before the city was anywhere near ready to pay them.
NYC Comptroller Brad Lander put it plainly: “When nonprofits cannot make payroll, are behind on their rents, and take out loans because the City is consistently late to pay, we are ultimately letting down New Yorkers who rely on these organizations.”
The Human Services Council of New York surveyed its member organizations and found that 90% reported delayed payments totaling $365 million. Nearly half had taken out loans or drawn on lines of credit just to keep operating while they waited.
And this is not just a New York City problem. The reimbursement funding model — where you spend first and wait to get paid back — is how a huge portion of government grant funding works across the entire country.
The Organization That Couldn’t Wait
Sheltering Arms was founded in 1823. Two hundred years of serving New York City’s most vulnerable children and families — foster care, youth homeless shelters, mental health services across all five boroughs. At its peak the organization served more than 17,000 children and families every year.
In February 2023, CEO Elizabeth McCarthy announced that Sheltering Arms would be shutting down.
McCarthy was direct about why. She cited financial challenges resulting from the pandemic, combined with chronic underfunding and late government payments. The Department of Education had agreed to reimburse only seventy-five percent of the organization’s prior year spending, leaving Sheltering Arms millions behind on operating expenses.
According to financial reports reviewed by Gothamist in 2020, the organization took in about $99.2 million that year, almost entirely from government contracts, and spent all but about $66,000 of it.
Sixty-six thousand dollars in reserves on a $99 million organization. That is not a cushion. That is a tightrope.
When the government payments slowed, the cash dried up there was nothing to bridge the gap. Sheltering Arms transferred its programs to other nonprofits and filed for bankruptcy in 2024. Two hundred years of institutional knowledge and community trust, gone.
McCarthy told reporters: “If I built a bridge for the city and they stopped paying me for 18 months, I would stop building the bridge.”
The Core Insight
The Sheltering Arms story is about a particularly broken system going through a very difficult time, but it’s also about the gap between the revenue that a company’s Profit and Loss report shows and what is actually in its bank account.
Under accrual accounting, revenue gets recorded when it is earned, rather than when the cash arrives. A grant awarded but not yet paid shows up as revenue. A contract delivered but not yet reimbursed shows up as revenue. Meanwhile, payroll is due Friday.
For small nonprofits operating under $5 million — which describes most organizations — this gap between earned revenue and collected cash is one of the most common causes of financial crisis. Not mismanagement or poor decisions, but the structural reality of how nonprofit funding works.
What You Can Do About It
A few things every nonprofit leader should have in place before the gap becomes a crisis:
A cash flow forecast. Not a budget — a projection of when cash will actually arrive and when expenses are actually due. A simple spreadsheet updated monthly can be the difference between seeing a crisis coming and discovering it in time to plan.
A line of credit. This is not available to many smaller organizations, but if it is, USE it! Work with your bank to establish the line of credit before you need it. The process can take time, and banks extend credit to healthy organizations, not struggling ones. A line of credit is your bridge — you draw on it when payments are delayed and pay it back when they arrive.
An operating reserve. Even a small one. Three months of operating expenses is the standard target, built slowly through small annual surpluses. The organizations that survived New York City’s payment crisis were not necessarily better run than the ones that didn’t. They just had a cushion.
The Sheltering Arms story is painful precisely because the organization did so much right for so long. Cash flow management doesn’t prevent every crisis. But it’s the difference between a crisis you can survive and one you can’t.
Evan Tucker is the owner of Tucker Business Services, a bookkeeping and accounting firm serving nonprofits in the Pacific Northwest and beyond. Questions about your organization’s cash flow? We’d love to talk. Reach out using the Contact form on this site.
Sources
1. **NYC Comptroller Report — “Nonprofit, Nonpayment”** (Primary source)
Official April 2025 report documenting $861 million in unpaid invoices. Direct quote from Comptroller Brad Lander used in script.
2. **Gothamist — “200-year-old NYC youth charity to shut down after years of late contract payments”** (February 2023)
Primary source for Sheltering Arms story. Direct quotes from CEO Elizabeth McCarthy including the bridge quote and “devastating” used in script.
3. **The NonProfit Times — “Late Government Funds Claims Another Victim”** (February 2023)
Broader sector context including Human Services Council data, $223,000 average annual interest cost, and Nonprofit New York quote.
4. **Nonprofit Finance Fund — NYC Survey Report** (September 2025)
Survey data on payment delays, 62% of BIPOC-led nonprofits with 3 months or less cash on hand, and sector-wide financial strain.
5. **NYC Council — Contract Reform Legislation** (October 2025)
Direct quotes from Speaker Adrienne Adams and Kristin Miller of Homeless Services United used in script.
6. **The City NYC — “Nonprofit Service Providers Take on Debt, Mull Layoffs”** (November 2024)
Direct quote from Michelle Jackson, CEO of Human Services Council — “It’s definitely the worst it’s ever been.”
7. **Yale School of Management — Yale Insights** (March 2025)
Research on funding dependence — direct quote on 40% budget exposure and payroll vulnerability used in script.
https://insights.som.yale.edu/insights/the-funding-crisis-facing-nonprofits
8. **Imprint News — “One of New York City’s Oldest Nonprofits Serving Children and Families to Shut Its Doors”** (March 2023)
Additional Sheltering Arms detail including program transfer to Rising Ground and scope of services.
9. **Human Services Council of New York. “Essential or Expendable? How Human Services Supported Communities Through COVID-19 and Recommendations to Support an Equitable Recovery.” 2021. Referenced and confirmed in:
The Century Foundation. “Strengthening New York City’s Nonprofit Human Services Sector.” July 22, 2021.
https://tcf.org/content/report/strengthening-new-york-citys-nonprofit-human-services-sector
10. **New York Council of Nonprofits / Nonprofit Quarterly. “New York and Other States Move to Fix Nonprofit Contracting Delays.” Nonprofit Quarterly, July 7, 2025.
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