Chapter 17 AQA Business 2

Causes of Cash Flow problems: 

seasonal demand

*overtrading 

*over investment in fixed assets

*credit sales

*poor stock management

*poor management of suppliers

*Unforseen change

losses or low profits

Bank overdraft - an agreement whereby the holder of a current account a a bank is allowed to withdraw more money then there is in the account. An agreement has to be made.

*Short term loan- a sum of money provided to a firm or an individual for a specific, agreed purpose. Repayment of the loan will take place with 2 years max. 

Factoring - when a company buts the right to collecct the money from the credit sales of an organisation. 

Sale of assets - when a business transfers ownership of its item that it owns to another business or individual usually in return for cash 

Sale and leaseback of assets - when assets thar are owned by a firm are sold to raise cash and then rented back so that the company can still use them for an agreed time

* Working capital - the day to day finanance used in a business, consising of assets minus liabilities 

+

administrative convenience

flexibility

intrest is paid only what is owed

*no security necessary

-

variable intrest payments

*higher interest rate

*immediate repayment

short term loan

+

* fixed interest payments

*lower interest rates

_

*higher interest payments

*security

+

* improved cash flow (short run)

lower administration costs

*reduced risks of bad debts 

*increased efficency

-

loss of revenue 

*high cost

*customer relation problems

sales of assets 

+:

* income

profitability

-:

*recieving a low value for the asset

reduced ability to make profit 

sale and lease back: 

+

* cash inflow

* flexibility 

* lower costs 

* greater focus 

-

* rent

*reduced assets

*loss of the use of the asset

Other ways of improving cash flow:

*improved working capital

*cash management

*debt management

*stock management