Business Cash Flow by Mariam Diallo

Overtrading

2025mdiallo1 — 2024-02-22 02:35:04 UTC

This occurs when a business attempts to expand too quickly, without sufficient resources. The excess amount of orders add to production costs and the purchase of fixed assets all consume cash thus reducing the next cash flow of the business.

Overborrowing

2025mdiallo1 — 2024-02-22 02:36:58 UTC

The larger the proportion of capital raised through external SOF makes for a high cash outflow or interest payments for loans. If there is a rising interest rate, the cash outflow on loan interest increases, putting further pressure on a firm's net cash flow and liquidity position.

Overstocking

2025mdiallo1 — 2024-02-22 02:39:18 UTC

This means that a business holds too much stock. Stocks cost money to buy, produce, and store. It is also prone to damage and in certain sectors may expire and become obsolete before they are given the chance to be sold off. Additionally, it represents a waste of scarce resources as the money could be better invested into a different department.

Poor credit control

2025mdiallo1 — 2024-02-22 02:44:50 UTC

When a firm offers customers a prolonged credit period, this then leads the business to trade for extended periods without sufficient cash inflows.

Unforeseen changes

2025mdiallo1 — 2024-02-22 02:48:46 UTC

Changes in demand can cause serious cash flow problems. For example, machinery breaking down can delay recipet of payments from customers. This affects businesses that face highly seasonal demand such as a producer of Valentine's cards, easter eggs, halloween products, and or back ti school products.

Cash flow problems

2025mdiallo1 — 2024-02-22 02:49:52 UTC

Cash Flow solutions

2025mdiallo1 — 2024-02-22 02:52:25 UTC

Reducing Cash outflows

2025mdiallo1 — 2024-02-22 02:58:02 UTC

Seek preferential credit terms: a business may be able to negotiate an extended credit terms in order to lengthen the time taken to pay its suppliers and creditors.
Leasing: rather than purchasing, a company can decide to lease machinery, land, and vehicles that would have been more expensive than buying.
Seek alternative suppliers: different suppliers offer more competitive prices that would help to reduce their cash outflows.
Better stock control: reducing stock levels by using a just in time system, helps to reduce liquidity being tied up in stocks

Improving cash inflows

2025mdiallo1 — 2024-02-22 02:59:37 UTC

Cash payments only: this requires customers to pay by cash and removes the delay in receiving cash from credit sales.
Improved product portfolio: by providing a wide and varied product portfolio, a business is more likely to generate increased sales revenue.
Tighter credit control: can limit trade credit to their customers or reduce the credit period. Both methods mean that the business receives cash sooner which helps to improve its cash flow.
Improve product portfolio: a business is more likely to generate increased sales revenue. Poor sales in one product market can be offset by higher sales in another market.

Obtaining additional SOF

2025mdiallo1 — 2024-02-22 03:06:57 UTC

Overdrafts: banks provide this service which allows a business to temporarily take out more money than exists in its bank account. This gives the firm immediate access to cash during times of negative net cash flow.
Selling fixed assets: the sale of dormant assets can generate cash also. Not always advisable because it is needed for a business to operate and to expand
Debt factoring: this financial service allows an external party to take over the collection of money owed by debtors.
Government assistance: Some businesses may qualify for grants, subsidies, or low interest loans. This helps to boost the cash flow position of a business.