- Created by: Sophie Chanoch
- Created on: 15-02-13 11:10
Cause of Cash Flow Problems
The importance of a business having a steady cash flow is an absolute necessity. There are times when there can be problems with cash flow.
The use of too much credit by the business which could lead to future crisis.
Holding excessive reserve stock which it may find hard to sell off in exchange for cash.
Granting long credit periods to clients which could lead to a shortage of cash while they await payment debtors.
Seasonal fluctuations which could drain the outgoing of any business.
Failure to adequately deal with unprecedented problems in the business.
Counter measures need to be taken to avoid the occurrence of any of the above in the business.
Ways to Improve Cash Flow
There are several methods of ensuring steady flow of cash in the business.
Sourcing for additional funds.
Delay of out flows.
Reducing the expenditure.
Speeding up cash in flows.
Sourcing for additional funds could be done through use of short term loans, sales and leaseback, long term loans and overdraft facilities.
Delay of outflows involves measures to improve the management of credit, leasing options rather than buying assets and the negotiation of better terms of credit.
Reducing the expenditure of the business is achieved through cost cutting measures, reducing the level of stock, as well as postponing expenditure. Speeding up cash in flows can be used to ensure customers pay for products purchased on credit quickly. This prevents unnecessary delays to the in flow of cash to the business.