cash flow

unit 2 improving cash flow

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  • Created on: 22-05-11 14:09
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UNIT 2 ­ Managing a business
Finance Revision notes
What needs to be known for this topic:
Understand the causes of cash flow
Be able to recommend ways of improving cash flow
Page | 1
Cash flow: The amounts of money flowing into and
out of a business over a period of time.
Seasonal demand
Over-investment in fixed assets
Credit sales
Poor stock management
Poor management of suppliers
Unforeseen change
Losses or low profits
Ways of improving cash flow:
Bank overdraft: Agreement between the account
holder and back to be allowed to withdraw more money than what is in the
Benefit Drawback
Administrative convenience Variable interest payments
Flexibility Higher interest rate
Interest is paid only on the Immediate repayment
amount owed
No security necessary
Short-term loan: Sum of money provided to the
firm/individual for an agreed purpose. Repayment may happen within 2yrs or
Benefit Drawback
Fixed interest payments Highest interest payments
Lower interest rate Security

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UNIT 2 ­ Managing a business
Finance Revision notes
Factoring (debt factoring): When a factoring
company (usually a bank) buys the right to collect the money from the credit
sales of an organisation.
Benefit Drawback
Page | 2 Improved cash flow in the short term Loss of revenue
Lower administration costs High cost
Reduced risk of bad debts Customer relations
Increased efficiency problems
Sale of assets: When a business transfers ownership
of what they own to someone else in return for cash.…read more


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