Cash Flow Question

From 2005 Past Paper


Identify 4 sources of cash flow problems and suggest one solution for each source you have identified.

Sources of cash flow problems:

too much money tied up in stock
allowing customers too long to pay
debtors not paying on time
high levels of borrowing along with high interest rates
high drawings
low sales
high expenses
purchasing capital equipment

Solutions
introduce JIT
offer discounts to encourage prompt payment
offer discounts/promote cash sales
sell any unused assets
reduce loans by eg increasing number of investors
debt factoring
sale and leaseback
extended credit
arrange overdraft/loan
cut costs
promote product or serv