Cash flow

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  • Created by: lara__001
  • Created on: 05-02-19 16:49

Cash flow

the amount of money being transferred into and out of the business.

Net cash flow: cash inflows - cash outflows

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Cash inflow examples:

  • Cash sales
  • Recievables/ receipts from trade customers
  • Sale of assets
  • Investment of share capital
  • Personal funds invested
  • Receipts of bank loans
  • Government grants
  • Receipts from factoring
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Cash outflow examples:

  • Payment of wages & salaries
  • Payment of suppliers
  • Buying equipment
  • Interest on bank loan/overdraft
  • Payment of dividends
  • Repayment of loans
  • Payment of leasing/hire purchase rentals
  • Income tax, VAT & corporation tax
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How to improve cash inflows:

  • Incentivise (encourage) early repayment - give customers a discount for paying early
  • Reduce trade credit given to customers
  • Sell off stock at a discounted price to free up cash
  • Inject fresh capital into the business
  • Sell idle assets
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How to slow down cash outflows:

  • Delay payments to suppliers
  • Increase trade credit agreements with suppliers
  • Cut costs - find cheaper alternatives or postpone spending in areas such as training or advertising
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Possible causes of cash flow problems:

  • Overtrading
  • Allowing too much trade credit to customers
  • Unforseen costs
  • Poor credit control
  • Innacurate cash flow management
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