Methods + difficulties of improving cash flow


Overdraft, short-term bank loan & debt factoring

Overdraft: Should mainly be used in the short term because of the flexibility & availability of interest rates - makes it hard to budget accurately as the bank may change it. Not suitable in the long term due to high-interest rates and being withdrawn by the bank on short notice.

Short-term bank loan: Higher interest rate charge than long term loans which leads to even higher payments each month

Debt factoring: Can lead to short term debt - also leads to bad debt if there are issues in between. Reduction in profit for each order/service.  Return of debt is less than debt owed.

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Sales of assets, sales of leaseback & credit contr

Sales of assets: Sales of assets such as machinery might be hard to sell quickly. Assets may be sold at a loss of initial investment

Sales of leaseback: Long term - a firm pays more in rent than it receives from its sales - reduces the value of assets that can be used as security against future loans. You don’t own the item being leased - can’t be sold in the future.

Credit control: Potential loss of investment opportunities as credit is a future payment.

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Delay payment from suppliers, stock management & r

Delayed payment from suppliers: The later you pay, the higher the penalty & the higher the costs of your goods. Supplier cancels contract - need to find a new supplier  - new supplier may be expensive.

Stock management:​ This will cut down the spending on stock but may leave the business vulnerable to not having stocks available to meet demand.  There needs to be enough stock to meet demand. Not able to meet sudden demand as limited stock in the warehouse but random increased demand. 

Reduce overhead spending: Fixed: move further = cheaper rent but longer to distribute to customers.

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