Cash Flow Management - ANS-the movement of cash in and out of a business over a
period of time. Matching cash flow in with cash flow out is essential. Examples of inflows
and outflows:
Inflows: Sales, Cash Payment f
...
Cash Flow Management - ANS-the movement of cash in and out of a business over a
period of time. Matching cash flow in with cash flow out is essential. Examples of inflows
and outflows:
Inflows: Sales, Cash Payment for accounts receivable, Commissions received, Sales of
assets, Proceeds from issue of shares, Interest received (investments/loans, etc.),
Dividends received.
Outputs: Payments to suppliers - raw materials/finished goods, etc., Interest on loans,
Operating expenses - wages/salaries; raw materials/finished goods, Drawings,
Purchase of assets, Loan repayments.
Cash Flow Statements - ANS-Provides a link between the income statement and
balance sheet. indicates the movement of cash receipts and cash payments resulting
from transactions over a period of time and can identify trends and can predict change.
can show whether a business can:
- Generate a favorable cash flow with inflows exceeding outflows
- Pay financial commitments as they fall due
- Have sufficient funds for future expansion or change
- Obtain finance from external sources when needed
- Pay drawings to owners or dividends to shareholders
Management Strategies - ANS-Distribution of Payments, Discounts for early payment,
factoring.
Distribution of Payments - ANS-involves distributing payments throughout the month,
year or other period so that large expenses don not occur at the same time and cash
shortfalls do not occur.
Advantages: More equal cash outflow each month rather than large outflows in some
months
Disadvantages: The business must have the equity to allow them to do this as some
businesses may rather choose when the make payment periodically when they have the
highest cash inflows.
Discounts for Early Payment - ANS-offering debtors a discount for paying before the
deadline of the business's credit policy.
Advantages: Encourages creditors to pay on time decreasing follow ups and debt
collecting costs, affects cash flow status in a good way with more concrete assets rather
than credits.
Disadvantages: The business gets less money because of the discount
Factoring - ANS-selling of accounts receivable for a discounted price to a finance or
specialist factoring company.
Advantages: Saves on costs involved in following up on unpaid accounts, improves
working capital, immediate access to funds improving cash flow and gearing
Continues...
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