CASH OPERATING CYCLE

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
Im totally stuck on where i can find information for this Question. Somehow i can answer it. I really some help!!<BR>The Q. is..<BR>If a company discovered that it was regularly having to borrow money to finance working capital what things might it examine to improve its management of the cash operating cycle.<BR><BR>If anyone knows anything about this topic please let me know!!<BR><BR>Many Thanks!!<BR><BR>Andy

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    CASH OPERATING CYCLE

    Andy<BR><BR>I'm studying on the tech level, this suggestion is based on my own experience within my company....<BR><BR>The investment made in working capital is largely a sales based effort. This generates more cash for the purchase of more stock or services, this makes more sales. When the cash cycle starts to slow down...i.e. when debtors don't pay on time or when stock/services arn't invoiced quickly enough the whole cycle can grind to a halt. So my suggested answer would be... 1)Examine the company's debtor balances and look at those outside the payment dates. 2)Look at the amount of money tied up in finished goods....if more of a control was placed on stocks and if suppliers were more generous with their discounts could savings be made?3)Examine the production methods(if applicable to the company) can savings be made by implementing tighter controls. As a method of control may be intoducing a cash flow forecast.......<BR><BR>I always think of the two main points.......... increasing sales and reducing costs. <BR><BR><BR>I hope this is of at least some help!<BR><BR>Erica
  • System
    System Posts: 100,534 🤖 Admin 🤖
    CASH OPERATING CYCLE

    The cash operating cycle should be as short as possible. Think about the business and how it operates. If you are borrowing (only) in support of working capital then you are said to be 'leading' which is paying out cash to suppliers before it is received from customers. You may also be buying raw materials in too large quantities.<BR><BR>1. Aim to keep all stocks as low as possible. This is a commercial as well as financial consideration, you don't want to run out of materials or fail to supply customers.<BR>2. Send out sales invoices as goods or services are supplied, don't wait until the end of the month.<BR>3. Include your bank details on your invoices and ask to be paid by bank transfer. 'Float' arises when you use cheques and the postal system.<BR>4. Keep on top of your Debtors daily, build good relationships and agree exact payment dates. Resolve payment disputes as quickly as possible. Consider the use of a Factoring Agency ( you sell the debtor balances to them, they pay you to your terms, however there is a fee involved)<BR>5. Consider early settlement discounts.<BR>6. Pay your creditors on the last day of their credit terms.<BR><BR>These are the more obvious techniques used.<BR><BR>David<BR>

Categories

Privacy Policy