STRATEGIES TO DEAL WITH CASHFLOW PROBLEMS

Question 1

Reducing Cash Outflows

Answer 1

1. Negotiate with suppliers or creditors to delay payment. However negotiations can be time consuming and it could affect future relationships.
2. Purchases of fixed assets can be delayed. However, if the machinery is becoming obsolete, delaying the purchase of replacements leads to decreased efficiency.
3. Can decrease expenses non related to production capacity such as advertising costs. However, it may reduce the future demand of a product.
4. Sourcing cheaper suppliers, though it might lead to poor quality.

Question 2

Improving Cash Inflow

Answer 2

1. Insist customers to pay in cash only. Avoids delayed payments. However, it may lose customers.
2. Offering discounts or incentives. Encourgae debtors to pay early. Reduce debt burned, but receive less money.
3. Diversify product offering. Potentially increasing sales, however it comes with highest costs and no ensured sales.

Question 3

Looking for additional Finance Sources

Answer 3

• Sale of assets: Only obsolete fixed assets to generate cash. If not it could lead to reduced production.
• Bank Overdraft: Great in help during times of immediate cash setbacks. However, high interest rates.
• Sale and leaseback: Assets can be sold to generate cash and then hired back for use in production. However leasing can be costly in the long run and the business looses assets that could be used as collateral when seeking a loan in the future.