Year 11 Exam > Year 11 Notes > Business Studies for GCSE/IGCSE > Solving Short-term Cash-flow Problems
Solving Short-term Cash-flow Problems | Business Studies for GCSE/IGCSE - Year 11 PDF Download
Overcoming Short-term Cash-flow Problems
- Liquidity denotes a business's capability to fulfill its immediate obligations, such as payments to creditors, using its existing assets.
- A business that fails to settle its dues promptly is prone to rapid failure, irrespective of its profitability.
- Effective liquidity management is pivotal for risk mitigation and equips a business to handle unforeseen circumstances.
- Many enterprises encounter short-term cash flow challenges.
- Start-ups typically confront initial periods marked by high expenses and limited sales revenue.
- Established firms might encounter unexpected scenarios, like receiving substantial orders necessitating the immediate purchase and payment for large quantities of raw materials.
- Various approaches exist to address short-term cash flow issues.
Diagram: Solving Short-term Cash-flow Problems
- Businesses frequently employ multiple strategies to maintain positive cash flow, such as utilizing both an overdraft and shortening the timeframe for customer payments.
The Methods used to Overcome Short-term Cash-flow Problems
Question for Solving Short-term Cash-flow ProblemsTry yourself: What is liquidity in a business context?View Solution
The document Solving Short-term Cash-flow Problems | Business Studies for GCSE/IGCSE - Year 11 is a part of the Year 11 Course Business Studies for GCSE/IGCSE.
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FAQs on Solving Short-term Cash-flow Problems - Business Studies for GCSE/IGCSE - Year 11
| 1. How can businesses overcome short-term cash-flow problems? |  |
Ans. Businesses can overcome short-term cash-flow problems by implementing strategies such as optimizing their accounts receivable, negotiating extended payment terms with suppliers, reducing unnecessary expenses, and exploring short-term financing options like lines of credit or business loans.
| 2. What are some common reasons for short-term cash-flow problems in businesses? | |
Ans. Some common reasons for short-term cash-flow problems in businesses include slow-paying customers, seasonal fluctuations in sales, unexpected expenses, overstocked inventory, and poor financial planning.
| 3. How important is it for businesses to address short-term cash-flow problems promptly? | |
Ans. It is crucial for businesses to address short-term cash-flow problems promptly to avoid financial instability, inability to pay bills or employees, damage to credit ratings, and potential business closure. Proactive management of cash flow is essential for the overall health and sustainability of a business.
| 4. What are some short-term financing options available to businesses facing cash-flow problems? | |
Ans. Some short-term financing options available to businesses facing cash-flow problems include securing a line of credit from a bank, obtaining a business credit card, factoring accounts receivable, invoice financing, and merchant cash advances.
| 5. How can businesses improve their cash-flow management to prevent short-term cash-flow problems in the future? | |
Ans. Businesses can improve their cash-flow management by creating and following a detailed budget, regularly monitoring and forecasting cash flow, implementing efficient invoicing and collection processes, maintaining good relationships with suppliers and customers, and building a cash reserve for emergencies.
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Nov 22, 2024 Last updated |
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