FINANCE: Strategies Flashcards
What is distribution of payments?
Distributing payments throughout the month or year so that large expenses do not occur at once and cash shortfalls do not occur.
When is discounts for early payments most effective?
When targeted at debtors who owe the largest amounts.
What are the advantages and disadvantages of discounts for early payments?
Advantages: reduces risk of late payment, increase customer loyalty.
Disadvantages: decrease profit margins.
What are the advantages and disadvantages of factoring?
Advantages: immediate cash injection, no interest.
Disadvantages: could indicate to customers that the business has cash flow problems.
What are some procedures for managing accounts receivables?
Offering a variety of payment methods.
Late payment fees.
What are the strategies for managing working capital?
Leasing: spread payments over time which spreads out liabilities.
Sale and lease back: selling an asset to a lessor and then leasing the asset back.
What is the main advantage of sale and lease back?
Improves liquidity as businesses receives cash from the sale of the asset which can be used as working capital.
What are fixed and variable costs?
Fixed costs are not dependent on the level of operating activity while variable costs do such as energy costs.
What are cost centres?
A department that is responsible for a particular set of activities.
What are examples of expense minimisation?
Reduce overtime, renegotiating electricity expenses etc.
What are exchange rates?
The ratio of one currency to another.
What are the effects of a depreciation in currency fluctuations?
Exports become cheaper and the price of imports will rise.
What are the effects of an appreciation in currency fluctuations?
Exports become more expensive but prices for imports will fall.
What are the methods of international payment?
Payment in advance: paid before exporting (low risk).
Letter of credit: bank provides guarantee of payment (low risk).
Document against payment: importer collects goods after paying for it (moderate risk).
Document against acceptance: importer collects the goods before paying for it (moderate risk).
Clean Payment: goods paid for after 30-90 days (large risk).
What is hedging?
An investment to decrease a risky situation.
