Unit 5 D1 - example of how a business may deal with cash flow problems.

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Suggest a solution that the business could use to resolve each problem.

If a business has some cash flow problems then they have some solutions as:

Overdraft agreements: A business with a fluctuating cash flow cycle should be able to show the forecast to the bank and make arrangements for periods of negative cash flows. Banks sometimes offer free overdraft facilities to help businesses through these periods, but only if pre-agreed. Going overdrawn on a bank account without an agreement with the bank can be a very expensive option.  Overdrafts allow allows the business to make essential payments whilst chasing up their own payments, along with helping to maintain cash flow, only need to borrow what you need at the time. Overdrafts are easy and quick to arrange, providing a good cash flow backup with the minimum hassle. In the meanwhile it has its bad effect as well. Overdrafts carry interest and fees; often much higher rates than loans, which makes them very expensive for long term borrowing; the business can also face large charges if they go over the agreed overdraft time period. Unless mentioned in the terms and conditions, bank can recall the entire overdraft at any time, this is due to fall to make other payments, or if broken terms and conditions; though sometimes the banks change their policies. Overdrafts may need to be secured against your business assets, which put them at risk if you cannot meet repayments.

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Negotiating terms with creditors: Creditors are people or businesses that a business owes money to, normally because goods or services have been bought on credit as opposed to cash purchases. A business with cash flow problems could try to negotiate a longer payment term with its suppliers for example, an increase from 30 days to 60 days. This would slow down the flow of cash out of the business. A negative effect of this However may be the loss of any discounts offered for prompt or early payment.

Reviewing and rescheduling capital expenditure: Reviewing and rescheduling capital expenditure is ...

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