Forecasting and managing cash flow 5.3 Flashcards
Define the term “Cash flow”
The sum of cash payments to a business. (Inflows and outflows)
Define the term “Liquidation”
When a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors.
Define the term “Insolvent”
When a business cannot meet its short-term debts.
Define the term “Cash inflows”
Payments in cash received by a business, such as those from customers (trade receivables) or from the bank
Define the term “Cash outflows”
Payments in cash made by the business such as those to suppliers and workers.
Define the term “Cash-flow forecast”
Estimate of a firm’s future cash inflows and outflows.
Define the term “Net monthly cash flow”
Estimated difference between monthly cash inflows and cash outflows.
Define the term “Opening cash balance”
Cash held by the business at the start of the month.
Define the term “Closing cash balance”
Cash held by the business at the end of the month. (it is next month’s opening balance)
Define the term “Credit control”
Monitoring of debts to ensure that credit periods are not exceeded.
Define the term “Bad debt”
Unpaid customers bills that are now very unlikely to ever be paid.
Define the term “Overtrading”
Expanding a business rapidly without obtaining all of the necessary finance so that a cash-flow shortage develops.
List 3 methods on how to improve cash flow.
Answers can include :
- Overdraft
- Short-term loan
- Sales of assets
- Reduce credit terms to customers
- Debt factoring
List 3 ways to reduce cash outflows.
Answers may include :
- Delay payments to suppliers (creditors)
- Delay spending on capital equipment
- Use leasing, not outright purchase of capital equipment
- Cut overhead spending that does not directly affect output
Define the term “Creditors”
Suppliers who have agreed to supply products on credit and who have not yet been paid.
