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How to improve cash flow (Overdrafts (Can be arranged with banks to allow…
How to improve cash flow
Overdrafts
Can be arranged with banks to allow a business to borrow money according to its needs, up to a present amount.
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Drawbacks: in the long term overdrafts can be expensive, as the business will need to pay interest on the borrowed money.
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Increase Credit Period
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They try get their suppliers to give them a longer credit period, and give their customer shorter credit period.
However, its important to balance the needs to manage cash flow with the need to keep suppliers and customers happy - you don't want customers to go elsewhere
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Debt Factoring
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Drawbacks: The agent pays the business about 80% of the value of the invoice as an instant cash advance. The agents gets the customer to pay up, and then keeps about 5% of the value of the invoice.
Sales and Leaseback
Is when a business sells equipment to raise capital, and then rents (lease) the equipment back.
Benefit: That way, they get a big lump sum of the sale, and pay a little bit of money a month for leasing the equipment.
Drawback: Of course they don't get to own the equipment again unless they get enough cash to buy it back- and they have to pay a lease in the meantime.