What are cash-flow problems and how to improve cash-flow

Updated: Feb 22

Cash-flow problems can be solved with proper cash-flow forecast


Possible cash-flow problems could arise from;

  1. Excess inventory on materials and finished stocks

  2. Overspending on non-current assets

  3. Too much borrowing

  4. Incurring too many expenses from expanding too quickly

  5. Poor repayment collection (from debtors)

  6. Inflation

  7. Inconsistent cash sales revenue

A business can improve cash-flow when it

  1. Increase finances through debt

  2. Delay repayment to suppliers (creditors)

  3. Increase debt collection activities (from debtors)

  4. Reviewing trade credit agreement to reduce repayment period of debtors


RELATED CONCEPTS

  1. Debt

  2. Trade credit

  3. Debtors

  4. Expanses

  5. Growth


PAST YEAR QUESTIONS

  1. Explain two ways (other than lower training costs) that a firm could improve its cash flow position. Which way do you think a firm should use? Justify your answer. (6 marks) May/June 2018/12

  2. Do you think delaying payments to suppliers is the best way for a small business to improve its cash-flow? Justify your answer. (6 marks) May/June 2020/11