Cashflow

Question 1

What are the 4 causes of cash flow problems?

Answer 1

• Overtrading
• Allowing too much trade credit
• Poor credit control
• Inaccurate cash flow forecasting

Question 2

What 6 methods of improving cash flow are there?

Answer 2

• Improved control of working capital

• Negotiate improved terms for trade credit

• Offer less trade credit

• Debt factoring

• Arrange short-term borrowing

• Sale and leaseback

• Sell assets

Question 3

What is working capital?

Answer 3

The finance available to the business for its day-to-day trading activities.

Question 4

Give examples of what working capital can be used for

Answer 4

• Paying wages
• Raw Materials
• Fuel

Question 5

What is debt factoring?

Answer 5

Service offer by financial institutions, businesses can sell their bills from debt they are owed to gain cash immediately for a fee.

Question 6

What is Sale and leaseback?

Answer 6

Selling a major asset and then leasing it from the new owner

Question 7

What is the impact of discounting prices? What is a drawback of this?

Answer 7

• Increases sales
• Reduces stock
• Generates cash

Drawback:
• May undermine the ability to charge higher prices later.

Question 8

How does a business benefit from effective and careful cashflow management?

Answer 8

• Reduced borrowing costs

• Good relations with suppliers

• Public relations

Question 9

Methods of improving cashflow

Answer 9

• Negotiate improved credit term

• Offer less trade credit to customers

• Debt factoring

• Sale and Leaseback

Question 10

Methods of improving profit

Answer 10

• Reduce costs of production

• Increase prices

• Improve efficiency

• Reduce substandard products

• Maximise capacity

• Improve methods of production