Causes of cash flow problems + ways to improve cash flow

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Aren't always accurate

Cash flow forecasts are based on assumptions about what will happen.

Circumstances change suddenly. VC can increase. FC can increase if machinery breaks down or needs repairing. Competitors can cut prices- affecting case study firm's sales.

Good cash flow forecasting needs lots of experience + research done into the market.

False forecast can have disastrous results. E.g firm may run out of cash + go bankrupt.

Improving Cash flow


  • When a bank allows an individual/organisation to overspend its' current account in the bank up to an agreed limit + for a stated time period.
  • Easy to organise.
  • Cheaper than a loan. Interest only paid on amount of overdraft used. 
  • Difficult to budget accurately- flexible interest rates. 
  • Rate of interest higher than on a loan. More expensive.

Short term loan.

  • Sum of money provided to a firm/individual buy a bank for a specific agreed purpose.
  • Easy to budget loan repayments- fixed interest rate.
  • Rate of interest usually cheaper than overdraft. 
  • Set up for specific amount of time- suits needs of firm.
  • Interest paid on whole of sum borrowed. 
  • Need to provide collateral/security to secure loan.

Case study firm can try and hold less stock. So less cash tied up in stock.

Debt factoring gives instant cash to business whose customers haven't paid their invoices.

  • Banks + other financial institutions act as debt factoring agents, who gets customer to pay up + then keeps about 5% of the value of the invoice.
  • DF costs a lot of money.

Sale and leaseback of assets

  • When case study business sells equipment to raise money + then rent the item back.
  • Case study firm receives big lump sum + pay a little bit of money for lease of equipment.

Sale of assets.

  • Converting an asset into cash which can then be used to ease the


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