2. CAUSES OF CASH FLOW PROBLEMS All businesses must have healthy cash flows in order to generate sufficient working capital to pay their employees, suppliers, financiers and landlords. A problem with long working capital is that the businesses have to pay for their expenses in advance of receiving any cash inflows

3. MAIN CAUSES FOR THOSE PROBLEMS Overtrading: When a business wants to expand too quickly without the sufficient resources to do so. Ex: a firm might take on more orders than it can possibly handle. Overborrowing: The larger the proportion of capital raised through external sources of finance, the higher will be the cash outflow on interest payment. Overstocking:??

4. MAIN CAUSES FOR THOSE PROBLEMS Poor credit control: cash flow problems can increase when a firm allows too much credit to its customers. Unforeseen changes: Unexpected changes in demand may cause major cash flow problems.

5. Management of WC (dealing with liquidity problems) There are some ways to deal with liquidity problems: Seeking alternative sources of finance Improving cash inflows Reducing cash outflows

6. Seeking alternatives sources of finance Overdrafts Sale and leaseback Selling off fixed assets (obsolete and unused assets) Debt factoring Government assistance

7. Improving cash inflows Tighter credit control: Firms can limit trade credit to their customers or reduce the credit period that customers are granted. Ex: reduce the debtor period Cash payment only: “rival” Change pricing policy: cutting pruces can help to convert stocks into cash Improved product portfolio: By providing a wide and a varied product portfolio, a business is more likely to generate sales from a range market segmentation Improved marketing planning:

8. Reducing cash outflows Seek preferential credit terms: a business can negotiate extended credit terms, ex: to extend the time to pay to suppliers and creditors Seek alternative suppliers: Different suppliers may be able to offer stocks at more competitive prices Better stock control: reducing stocks levels by using a just in time system Reduce expenses:

9. Limitations of cash flow forecasting Marketing: Poor market research may lead to incorrect sales forecasts Human resources: A demoralized workforce becomes a less productive workforce that delivers poor customer service Operations management: machine failure, may cause production delays Competitors: Changing fashion and tastes: will cause a change in the demand

10. Limitations of cash flow forecasting Economic changes: Changes in economic variables will also present opportunities or threats to a business External shocks: weather, oil crisis