3.5.4

Question 1

What is seasonal demand and why does it cause cash flow problems?

Answer 1

= Demand that fluctuates depending on the time of year
- Certain times = lower inflows but consistent outflows.

Question 2

What is overtrading and why does it cause cash flow problems?

Answer 2

= When the business grows too quickly and runs out of cash to trade
- Too much money spent on inventory that may not sell

Question 3

What is overinvestment in fixed assets and why does it cause cash flow problems?

Answer 3

= Not enough money to carry on trading due to buying too many fixed assets
- Spent too much on machinery = high outflows but no inflows

Question 4

What are credit sales and why does it cause cash flow problems?

Answer 4

= When a business sells goods to consumers on credit
- Money not received immediately

Question 5

What is poor stock management and why does it cause cash flow problems?

Answer 5

= Too much or too little stock
- Cash tied up in assets or not enough to meet demand

Question 6

What is poor supplier management and why does it cause cash flow problems?

Answer 6

= Too many or too few suppliers
- No trade credit = must pay suppliers immediately

Question 7

How can cash flow be improved?

Answer 7

• Overdraft
• Short term loan
• Sale of assets
• Debt factorimg
• Sale and leaseback of assets
• Improved trade credit managament