Cash flow management

• Firms need to plan the flow of money into and out of a firm
• Cash inflows are monies coming into a firm (receipts)
• Cash outflows are monies going out of a firm (payments)
• Net cash flow is the difference between cash inflows and cash outflows

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Why is cash flow management important?

• It gives the firm information about the future inflow and outflow of cash within a firm
• It identifies any points where problems may occur
• It enables firms to prepare plans to eliminate such problems

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Too much cash? Too little cash?

• Firms need enough cash to cover their immediate spending.

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• A firm that holds too much cash will lose the profit it could get from investing the cash

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�Sources of cashflow problems

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Unplanned expenditure

• Bad debts
• Breakdowns
• Theft etc.

Too many fixed assets

• Drains cash too quickly

Overtrading

• Growing too quickly

Overborrowing

• Problems when interest rates rise

Stockpiling

• Holding stock is expensive

Changes in demand

• Fashion products

The economy

• Underestimating inflation

�Resolving a cashflow crisis

5

Short-term finance

• Loan, overdraft etc.

Make essential purchases only

Sell off excess raw materials

Stimulate sales

• Offer discounts

Chase overdue debtors

• Improve credit control

Extend credit terms

• Talk to suppliers

Sell fixed assets

• Lease them back???

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• Debt Factoring