analysing financial performance: improving cash flow Flashcards
what are payables?
the money a business owes to its suppliers and other short term creditors
what are receivables?
money owed to a business by its customers or debtors
what is a creditor?
those to whom a business owes money for goods or services that have been delivered but not paid for
what are debtors?
those who owe money to a business for goods or services that have been delivered but not paid for
define trade credit
when a supplier allows a customer to receive goods or services but pay for them later
what’s credit control?
the process of monitoring and collecting the money owed to a business
what are bad debts?
payments that are long overdue and the firm cannot expect to be paid
what is overtrading?
this occurs when a business does not have enough cash to finance the purchase of raw materials and the production process
what is debt factoring?
obtaining part payment for a debt immediately which the factoring firm will then collect
define sale and leaseback
a contract that at the same time sells a property (the freehold) and then rents it back (the leasehold)
what are the 3 main purposes of a cash flow forecast?
- to anticipate potential shortages of cash
- examine and possibly adjust the timings of receipts and repayments
- to arrange financial support where problems are forecast
what are three main causes of cash-flow problems?
- allowing too much credit
- negotiating too little credit
- over-reliance on one or two customers
give three methods of improving cash flow problems
- regularly monitor and control cash through budgets and cash-flow forecasts
- short term loan
- secure an overdraft or increase existing overdraft
what would be a benefit and a limitation of using a bank overdraft to improve cash flow?
benefit- able to go over the banks money
limitation- interest rates after certain amount only
define cash flow
the continuous movement of money into and out of a business; the timing of revenue and costs
