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TODO cash flow management notes 🔼 📅 2024-03-29
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Cash flow is :: the movement of cash in and out of a business over a period of time.
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Inflows:
- sales, cash payments for accounts receivable, interest received, and dividends.
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Outflows:
- payments to suppliers, interest on loans, operating expenses, drawings, and the purchase of assets.
Cash flow statements
- a Cash flow statement is :: a financial statement that indicates the movement of cash receipts and cash payments resulting from financial transactions over a period of time.
- provides information on a firm’s solvency
- cash flow forecasts helps owners predict future surpluses or shortages of cash
Cash flow management strategies
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A business may face temporary shortages of cash at hand
- often use overdrafts to cover these shortages
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Three common cash flow management strategies include
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Distribution of payments
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Discounts for early payment
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Factoring
Distribution of payments
- Distribution of payments occurs when :: businesses or individuals spread out their payments across each month to ensure large expenses don not occur at the same time and cash shortfalls do not occur.
Discounts for early payment
- Discounts for early payments occurs :: when suppliers offer a discount to their customers if they pay within a specific period of time.
- Suppliers are able to acquire funds quicker
- accelerates the rate of cash flow coming into the business
Factoring (as a cash flow management strategy)
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- SEE Factoring
- When the business sells its accounts receivables to a specialist factoring firm to create cash inflows for the business.
- Factoring allows immediate access to funds which improves cash flow, working capital and gearing.
- Important as it offers immediate cash injection
- business can receive funds within 24 hours of submitting to a factoring company